UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10239
PLUM CREEK TIMBER COMPANY, L.P.
(Exact name of registrant as specified in its charter)
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
Organized in the State of Delaware I.R.S. Employer
Identification No. 91-1443693
Securities registered pursuant to Section 12(b) of the Act:
Depositary Units, Representing Limited Partner Interests ("Units")
The above securities are registered on the New York Stock Exchange.
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ X ]
The aggregate market value of Units held by non-affiliates based on the
closing sales price on February 28, 1998 was approximately
$1,523,574,709. For this calculation, all executive officers and
directors have been deemed affiliates. Such determination should not be
deemed an admission that such executive officers and directors are, in
fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: None.
PART I
ITEM 1. BUSINESS
GENERAL
Plum Creek Timber Company, L.P. (the "Partnership"), a Delaware
limited partnership organized in 1989, Plum Creek Manufacturing, L.P.
("Manufacturing"), and Plum Creek Marketing, Inc. ("Marketing"), own,
manage, and operate approximately 2.4 million acres of timberland and
twelve wood products conversion facilities in the Northwest and
Southeast United States. 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 and four percent of Manufacturing and Marketing, respectively.
As used herein, "Company" refers to the combined entities of the
Partnership, Manufacturing and Marketing.
ACQUISITIONS AND DISPOSITION
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberland in Louisiana
and Arkansas, along with two sawmills, a plywood plant and a nursery
from Riverwood International Corporation for a total purchase price of
$540 million, plus $11.9 million for working capital (the "Southern
Region Acquisition").
On October 11, 1996, the Company consummated the sale to Stimson
Lumber Company ("Stimson") of 107,000 acres of timberland in Northeast
Washington and Northern Idaho and the Company's sawmill near Colville,
Washington (the "Newport Asset Sale") for approximately $141.9 million,
plus $8.7 million for working capital. The Company used the net
proceeds from the Newport Asset Sale to pay a portion of the purchase
price for the Southern Region Acquisition.
On November 1, 1993, the Partnership purchased approximately
865,000 acres of timberland and other timber related assets located in
western Montana (the "Montana Timberland Acquisition") from Champion
International Corporation for approximately $260 million.
SEGMENT INFORMATION
As used herein, "Resources Segment" refers to the combined timber
and land management business of the Partnership. "Manufacturing
Segment" refers to the combined business of Manufacturing and Marketing.
Certain financial information for each business segment is included in
Note 14 of Notes to Combined Financial Statements.
RESOURCES SEGMENT
GENERAL. The Partnership owns and manages approximately 2.4
million acres of timberland in the Northwest and Southeast United States
(the "Timberlands"). The Timberlands are geographically segregated into
three regions: the Cascades Region in western Washington, the Rocky
Mountain Region in western Montana and northern Idaho, and the Southern
Region in Louisiana and Arkansas. At December 31, 1997, the Timberlands
contained an estimated timber inventory of 8.6 billion board feet
("BBF") of standing timber in the Cascades and Rocky Mountain Regions
(the "Northwest Timberlands") and approximately 5.2 million Cunits in
the Southern Region (the "Southern Timberlands").
The Resources Segment grows and harvests timber for sale in export
and domestic markets and sells, on an opportunistic basis, land which is
designated as having a higher and better use than forest management.
The Cascades Region consists of approximately 309,000 acres of
timberland containing an estimated 2.0 BBF of standing timber. Logs
harvested in the Cascades Region are sold for export to Pacific Rim
countries, principally Japan, and to domestic mills owned by third
parties, as the Company does not own mills in the Cascades Region. Logs
sold for export are generally of higher quality than logs sold into the
domestic market.
The Rocky Mountain Region consists of approximately 1,591,000 acres
of timberland containing an estimated 6.6 BBF of standing timber. The
Rocky Mountain Region sells logs to the Manufacturing Segment, with the
remainder sold to third-party domestic mills. Simultaneously with the
Montana Timberland Acquisition, the Partnership entered into a log
sourcing agreement with Stimson to supply Stimson's Montana mills with
logs, based upon prevailing market prices, over a ten year period ending
in 2003.
The Southern Region consists of approximately 538,000 acres
(including 9,000 acres of leased land) containing an estimated 5.2
million Cunits of standing timber. The Southern Timberlands are nearing
the end of a process commenced in 1972 of conversion from unmanaged
second growth timber into plantation forests. The Partnership expects
this process to be completed by approximately the year 2000. The pine
fiber growth from these plantations is expected to increase
substantially over the next 10 to 15 years as a result of this
conversion. The Southern Region sells sawlogs to the Manufacturing
Segment and to third-party domestic mills and sells pulp logs and chips
to third-party domestic pulp and paper manufacturers. As part of the
Southern Region Acquisition, the Partnership entered into a long-term
agreement to supply pulp wood fiber to Riverwood International's West
Monroe paperboard plant based upon prevailing market prices. The
Partnership expects that the agreement will provide the Company with a
secure market for its local mill residuals and a substantial portion of
the pine and hardwood pulp logs harvested from the Southern Timberlands.
DOMESTIC LOGS. The Partnership sells its sawlogs directly to the
Manufacturing Segment and unaffiliated wood products manufacturers and
sells its pulpwood and in-woods chips to unaffiliated pulp and paper
manufacturers. The percentage of logs which are sold as sawlogs or pulp
logs varies by region and is dependent on, among other things, the
species mix and quality of the inventory harvested and the market
dynamics affecting the given region. The Partnership's customers
include numerous operators of conversion facilities. Domestic sawlog
sales accounted for approximately 15%, 21% and 21% of the Company's
combined revenues in 1997, 1996 and 1995, respectively.
In the Cascades Region, approximately 54% of the total volume
harvested in 1997 was sold to unaffiliated domestic wood products
manufacturers. The Partnership also sold 12% of the volume harvested in
1997 to third parties as pulp logs. Pulp logs generally constitute
smaller and lower quality logs which are not suitable for use by wood
products manufacturers.
In the Rocky Mountain Region, the Partnership sells its logs
domestically, virtually all as saw timber. In 1997, approximately 65%
of the timber harvested was sold to the Manufacturing Segment and the
remainder was sold to third-party domestic mills. In addition, a small
amount of lower quality logs is sold to pulp and paper manufacturers
when market conditions permit.
The fee harvest in the Southern Region during 1997 consisted of 57%
pulp logs and 43% sawlogs. Approximately 38% of the total timber
harvest in the Southern Region was sold to the Manufacturing Segment,
with the remainder sold to third-party domestic conversion facilities.
The Partnership operates in-woods chipping operations in
conjunction with conventional logging operations wherever feasible,
producing wood-chips from once valueless treetops and other debris that
were previously unutilized. Chip markets are highly susceptible to
fluctuations in markets for pulp and paper because pulp and paper
manufacturers are the primary customers. During the first half of 1996,
a decline in chip prices made it uneconomical to continue most of the
Partnership's in-woods chipping operations. However, operations resumed
at reduced levels in the second half of 1996 and continued at reduced
levels in 1997.
Domestic wood and fiber consuming facilities tend to purchase raw
materials within relatively confined geographic areas, generally within
a 200-mile radius, due to transportation costs. Competitive factors
within a market area generally will include price, species and grade,
quality, proximity to wood consuming facilities, ability to consistently
supply logs meeting customer specifications and delivery requirements.
The Partnership has a reputation as a stable and consistent supplier of
well-merchandised, high-quality logs. In domestic log markets, the
Partnership competes with numerous private land and timber owners in the
Northwestern and Southeastern United States and the state agencies of
Arkansas, Idaho, Louisiana, Montana, Oregon and Washington. In
addition, the Partnership competes with the United States government,
principally the United States Forest Service ("USFS"), the Bureau of
Land Management ("BLM") and the Bureau of Indian Affairs ("BIA"). All
federal timber and timber supplied from state lands in Washington and
Oregon is restricted from export, and is sold solely into domestic
markets.
EXPORT LOGS. Due to its extensive timber holdings, the Partnership
harvests large volumes of softwood logs, the majority being Douglas-fir
logs, historically a preferred species in Japan. Approximately 34% of
the total 1997 timber harvest in the Cascades Region was sold for export
to Pacific Rim countries, principally Japan. Douglas-fir logs sold for
export have generally commanded a significant premium over Douglas-fir
sold domestically. However, due to the recent weakness in the Japanese
economy, export log prices declined significantly in 1997, thus
eliminating a portion of this premium. Export log revenues accounted
for 6%, 8% and 10% of combined revenues for 1997, 1996 and 1995,
respectively, and accounted for 11%, 18% and 21%, respectively, of
operating income in such periods.
The Partnership's export log customers consist of large Japanese
trading companies who resell the logs to Japanese conversion facilities
or wholesalers. Competitors in this market include numerous private
land or timber owners in the United States and Canada, as well as
companies and state-controlled enterprises in Chile, New Zealand, Russia
and Scandinavia, all of which have abundant timber resources. In the
export log market, the Partnership competes based on its long-term
relationships with established customers and its reputation as a
reliable supplier of premium grade logs. Other competitive factors
include price, species and grade, and the ability to meet delivery
requirements on a year-round basis.
TIMBER RESOURCE MANAGEMENT. The Partnership's resource operations
involve timber management and harvesting operations, which include road
construction and reforestation, as well as wildlife and watershed
management. The Partnership employs a number of traditional and newly
developed harvesting techniques on its lands based on site specific
characteristics and other considerations. The Partnership practices
"Environmental Forestry" on the Timberlands which attempts to better
protect and maintain ecosystems while providing for a reasonable
harvest.
Particular forestry practices vary by geographic region and depend
upon factors such as soil productivity, tree size, age and stocking.
Forest stands are thinned periodically to improve growth and stand
quality until they are harvested. The Partnership actively utilizes
pre-commercial and commercial thinning practices. Pre-commercial
thinning occurs when the timber harvested is not merchantable. The
Partnership believes that such thinning improves the overall
productivity of the Timberlands by enhancing the growth of the remaining
trees. A substantial portion of the harvest volume on the Southern
Timberlands consists of commercial thinnings.
It is the Partnership's policy to ensure that every acre harvested
is promptly reforested. Based on the geographic and climatic conditions
of the harvest site, harvested areas may be regenerated naturally by
leaving mature trees to reseed the area. Natural regeneration methods
are widely used on about 70% of the harvested land in the Rocky Mountain
Region. In the Cascades Region substantially all of the reforestation
is done by planting. During 1997, the Partnership planted 3.3 million
seedlings on the Northwest Timberlands. Substantially all of the areas
harvested in the Southern Timberlands are regenerated with seedlings.
The Partnership planted 10 million seedlings on the Southern Timberlands
during 1997.
Forests are subject to a number of natural hazards, including
damage by fire, insects and disease. Severe weather conditions and
other natural disasters can also reduce the productivity of forest lands
and can interfere with the processing and delivery of forest products.
However, damage from natural causes is typically localized and would
only affect a portion of the Timberlands at any given time.
Nevertheless, such hazards are to a large extent unpredictable and there
can be no assurance that losses will be so limited. The size, species,
diversity and checker-board ownership of the Northwest Timberlands, as
well as the Partnership's forest management practices, should help to
minimize these risks. Consistent with the practices of other large
timber companies, the Partnership does not maintain insurance against
loss to standing timber on the Timberlands, but maintains insurance for
loss of logs due to fire and other occurrences following harvesting.
LAND MANAGEMENT. The Partnership seeks to realize the value of
property that may have a higher and better use than for commercial
timberland management or is otherwise a candidate for sale or exchange.
In 1995, the Partnership identified approximately 150,000 acres of land
located in recreational areas or near expanding population centers that
may optimally be used for conservation, residential or recreational
purposes. Over the next five to fifteen years the Partnership expects
to realize the value of these properties, either through sales or
exchanges. Approximately 3,350 acres and 21,600 acres of this land were
sold or exchanged during 1997 and 1996, respectively.
MANUFACTURING SEGMENT
GENERAL. The Manufacturing Segment consists of four lumber mills,
two plywood plants, a lumber remanufacturing facility and a medium
density fiberboard ("MDF") facility in western Montana and a wood chip
plant in Washington (collectively known as the "Northwest Conversion
Facilities") and a lumber mill and plywood plant located in Joyce,
Louisiana and a lumber mill located in Huttig, Arkansas, all of which
were purchased in connection with the Southern Region Acquisition
(collectively known as the "Southern Conversion Facilities", and
together with the Northwest Conversion Facilities, the "Conversion
Facilities"). The Northwest Conversion Facilities produce a wide
variety of lumber, plywood and MDF products. These products are
targeted to retail home centers and various specialty niche markets
which are less cyclical than traditional housing related markets.
Manufacturing sells a portion of these products to Marketing, which has
established a network of 40 independent warehouses located strategically
throughout the United States, in order to enhance customer service and
provide prompt deliveries. The Southern Conversion Facilities produce a
wide variety of lumber and plywood products that are sold to home
construction and industrial markets.
SOUTHERN REGION RECONFIGURATION. On November 4, 1997, the Company
announced plans to reconfigure its manufacturing complex at Joyce,
Louisiana to add value in targeted high margin, higher growth lumber
product areas. With an investment of approximately $22 million, the
Company plans to build a state-of-the-art, high-volume sawmill that will
allow the Company to capture greater value from its timber resource
through improved productivity and efficiency. As part of the plan, the
existing plywood plant and sawmill, which currently employ 430 people,
will be closed in stages, commencing in the third quarter of 1998. The
new sawmill will employ approximately 230 people and is expected to be
fully operational in the fourth quarter of 1998. The Company recorded
an expense of approximately $2 million during the fourth quarter of 1997
for severance costs related to the closure of the plywood plant. The
closure of the plywood plant is not expected to be material to the
Company's results of operations. All costs related to the
reconfiguration are expected to be funded from cash on hand, cash
generated from operations, and borrowings under the Line of Credit.
LUMBER. Manufacturing produces a diverse line of lumber products,
including boards, studs and dimension lumber which are manufactured at
two dimension lumber mills, two studmills, two random-length lumber
mills and a lumber remanufacturing plant. For the years ended December
31, 1997, 1996 and 1995 these mills produced 582 million board feet
("MMBF"), 461 MMBF, and 433 MMBF of lumber, respectively. Production
increased in 1997 primarily due to the addition of the two dimension
lumber mills in the Southern Region, offset in part by the disposition
of the Company's Arden random-length lumber mill, in October 1996.
Lumber product revenues represented approximately 41%, 38% and 38% of
total combined revenues in 1997, 1996 and 1995, respectively. Upgrades
at the Pablo mill to allow for more efficient processing of small logs
were begun in 1996. This project was completed in 1997. In 1997, a
similar project was started at the Huttig mill which is expected to be
completed in 1999.
Lumber products manufactured in the Northwest Conversion Facilities
are targeted towards domestic lumber retailers, such as retail home
center chains, for use in repair and remodeling projects. Value-added
products and services such as consumer appearance boards, pull-to-length
boards, premium furring strips, premium studs and pattern boards, aimed
at retail and other specialty markets, have made the Manufacturing
Segment less dependent on the cyclical housing related market. Lumber
products manufactured in the Southern Conversion Facilities are targeted
toward the home construction, industrial and export markets. In 1997,
42% of Manufacturing's lumber products was sold into retail markets, 29%
to stocking distributors, 17% to industrial and remanufactured product
markets, 3% to export markets and 9% to other markets.
Competition in the Company's lumber markets is primarily based on
price and quality, and to a lesser extent, the ability to meet delivery
requirements on a consistent long-term basis and to provide specialized
customer service. The Partnership competes in domestic lumber markets
primarily with other United States, Canadian, and European companies.
Canadian lumber producers have increased their penetration into the
United States market due to their lower wood fiber costs and favorable
exchange rates. During the five year period ended December 31, 1995,
Canadian producers increased their percentage of the U.S. lumber market
from 27% to 36%. In 1995, the United States and Canadian governments
announced a five-year lumber trade agreement effective April 1, 1996.
This agreement is intended to reduce the volume of Canadian lumber
exported into the United States through the assessment of an export
tariff on annual lumber exports to the United States in excess of
certain levels from the four major producing provinces. In 1997 and
1996, Canadian imports represented approximately 34% and 35%,
respectively, of the total U.S. lumber market. The lumber market is
also subject to competition from substitute products impacting shelving,
window and door markets. Substitute products include European imports,
radiata pine, MDF, particle board, laminates and wire shelving.
Substitution has significantly increased in the past several years due
to the increase in the price of studs and boards in the early 1990's.
Board markets have recently experienced increased competition from
European producers who are targeting a greater percentage of their
production toward the U.S. market due to weakness in the Japanese
market.
PLYWOOD. Manufacturing produces a diverse line of plywood
products at the Company's three plywood facilities. The Northwest
Conversion Facilities produce high-grade plywood sold primarily into
specialized industrial markets. The Southern Conversion Facilities
produce commodity and specialty grade panel products used in home
construction and furniture. For the years ended December 31, 1997, 1996
and 1995 the plywood plants produced 512 million square feet ("MMSF")
(3/8" basis), 334 MMSF, and 294 MMSF of plywood, respectively. The
increase in production in 1997 and 1996 was due to the addition of the
Joyce, Louisiana plywood plant in October 1996 (which is scheduled to be
closed in third quarter 1998). Plywood product revenues represented
22%, 17% and 18% of total combined revenues in 1997, 1996 and 1995,
respectively. During 1996, the lathe was upgraded at the Evergreen
plywood plant, increasing wood recovery by allowing logs to be peeled to
a smaller core. During 1995, capital improvements were made that
expanded production to include medium-density overlay plywood and
scarfed (joined together) plywood to produce longer lengths for
specialty products.
During 1997, 55% of Manufacturing's plywood products was sold in
specialty industrial markets, including carpet strip, recreational boat,
recreational vehicle, fiberglass-reinforced panel, manufactured home and
furniture markets. Manufacturing's plywood products are generally of
higher quality than commodity construction grade products, which makes
them more valuable in these specialty niche markets.
Competition within the plywood market is based primarily on price
and quality, and to a lesser extent, the ability to offer a full line of
products and to meet delivery requirements on a consistent, long-term
basis. The domestic plywood market is characterized by numerous large
and small producers and is also subject to competition from oriented
strand board ("OSB"), a wood product which is a less expensive and
generally lower quality substitute. Due to OSB's cost advantage, its
demand and market share in the residential segment has been increasing,
and this trend is expected to continue. Annual OSB capacity increased
by approximately 20% in 1997 and capacity is expected to increase by an
additional 30% through 2002. The quality of OSB continues to improve
and it has become widely accepted in many building applications.
However, since OSB does not have the strength, weight and machinability
of plywood, it cannot be used in certain specialty applications. In
order to avoid closing facilities, some commodity plywood manufacturers
have refocused their products toward industrial markets, resulting in
increased competition in markets the Company serves. The Company
expects to remain competitive due to its strong customer base, years of
experience in industrial markets, reputation for high quality products
(including various trademarked products such as MarineTech, RV-X,
DuraFloor, and Ultra-Core), superior wood, and the full line of products
it offers.
MEDIUM DENSITY FIBERBOARD. Manufacturing produces MDF products
which are primarily sold to distributors and to door, moulding, store
fixture and furniture manufacturers. During 1995, the manufacturing
process was redesigned to produce super-refined MDF2, a higher quality
MDF product that can be processed by customers more efficiently. For
the years ended December 31, 1997, 1996 and 1995 the plant produced 127
MMSF (3/4" basis), 113 MMSF, and 102 MMSF of MDF, respectively.
Production for 1995 was below full capacity due to downtime encountered
during the start-up of new high-energy refiners for the Company's new
super-refined MDF2 product and deterioration in market demand.
Production for 1996 was also below full capacity due to a continued
focus on producing high quality super-refined MDF2 during the extended
start-up phase. Super-refined MDF2 start-up was completed in the
second half of 1996.
The Manufacturing Segment supplies premium quality MDF to markets
primarily in North America and Pacific Rim countries. The introduction
of super-refined MDF2, one of the highest quality MDF products
available, has expanded the Partnership's markets to include higher
value applications, such as moulding and kitchen cabinets. In 1997, the
Manufacturing Segment sold approximately 57% of its MDF directly to
domestic industrial manufacturers or fabricators, 24% to stocking
distributors, 13% into overseas export markets, primarily Pacific Rim
countries, and 6% to retail and other markets.
MDF producers compete on a global scale, primarily on the basis of
price, quality and service. MDF is also subject to competition from
solid wood, hardboard and particle board products. Competition in the
industry has been increasing as a result of significant capacity
expansion both in the United States and Canada. In 1997, North American
capacity was approximately 2.2 BSF and, by the year 2000, capacity is
expected to increase by an additional 0.6 BSF. Much of the new capacity
will be in direct competition with super-refined MDF2. Over the same
time period demand is also expected to increase, but at a slower rate.
The Partnership believes it is well-positioned to compete based on
quality, price, and service. Super-refined MDF2 commands a price
premium over standard MDF due to its superior fiber quality and
consistent properties and densities. Moreover, because the Company's
fiber supply consists of western softwoods, a slow growth species with a
low abrasive content, super-refined MDF2 has proven to have superior
machining qualities over competing MDF products. In addition, because
the super-refined MDF2 manufacturing process does not use wood chips
(substantially reducing raw material costs) and because the facility has
access to low cost energy sources, the Partnership believes it is one of
the lowest cost producers in the industry.
CHIPS. Manufacturing's lumber and plywood mills produce residual
wood chips as a by-product from the conversion of raw logs into finished
products. These wood chips are sold to regional paper and pulp mills.
The Company's lumber and plywood facilities produced 461 thousand bone
dry units ("MBDU"), 333 MBDU and 297 MBDU of chips in 1997, 1996 and
1995, respectively. The increase in volume in 1997 and 1996 was due to
the addition of the Southern Conversion Facilities in October 1996. A
substantial portion of the Company's chips produced in the Rocky
Mountain Region are sold to a customer under a long-term supply
agreement.
Manufacturing also produces wood chips at its Cle Elum, Washington
chip plant. The chip plant produced 1 MBDU, 6 MBDU and 32 MBDU in 1997,
1996 and 1995, respectively. The chip plant was shut down on April 1,
1996 due to weak chip markets and was reopened in December 1997.
RAW MATERIALS. Manufacturing obtains the majority of its raw logs
from the Partnership's Timberlands. The Resources Segment provided 79%,
70%, and 73% of the Northwest Conversion Facilities' raw log needs in
1997, 1996 and 1995, respectively. The Southern Conversion facilities
obtained 72% and 75% of their raw logs from the Resources Segment in
1997 and during the period from October 19 through December 31, 1996,
respectively. The price of logs obtained from the Partnership is
determined quarterly based upon estimated market prices. The
Timberlands provide a consistent supply of quality logs and preferred
species to the Conversion Facilities, although over time the average log
size is expected to decline, and the species mix is expected to change
due to harvest and growth patterns.
Manufacturing has and will continue to purchase stumpage and logs
from external sources, which include the USFS, BIA, BLM and state and
private timberland owners. At December 31, 1997, the Northwest
Conversion Facilities had 77 MMBF of timber under contract from external
sources which may be harvested over the next three years. The USFS
harvest plan is expected to provide for a 1998 harvest of 300 MMBF in
the geographic area of the Northwest Conversion Facilities. However,
due in part to legal challenges and changes in public policy, the USFS
will likely sell less volume. Manufacturing is permitted to bid on up
to approximately fifty percent annually of this USFS volume, with the
remainder set aside for small businesses. In addition, approximately
450 MMBF of timber is expected to be made available annually from other
sources. At December 31, 1997, the Southern Conversion Facilities had 12
MMBF of timber under contract from external sources which may be
harvested over a two year period. The amount of timber expected to be
available from other sources in 1998 in the geographic area of the
Southern Conversion Facilities is 16 MMBF and 200 MMBF from the USFS and
other sources, respectively. The geographic area in which the
Conversion Facilities obtain logs may expand or contract from year to
year as the cost of logs and value of manufactured products fluctuate.
(For further discussion of other timber supply issues see "Federal and
State Regulations".)
The MDF facility has a consistent supply of sawdust and wood
shavings from internal and external sources. The remanufacturing
facility uses short pieces of lumber, a by-product of Manufacturing's
studmill operations.
COMPETITION
Markets for forest products are highly competitive in terms of
price and quality. Many of the Company's competitors have substantially
greater financial and operating resources than the Company. In
addition, wood products are subject to increasing competition from a
variety of substitute products, including non-wood and engineered wood
products. Plywood markets are subject to competition from OSB and
lumber and log markets are subject to competition from other worldwide
suppliers. The Partnership believes it is able to compete effectively
due to its extensive private timber inventory (which includes premium
species such as Douglas-fir and Ponderosa Pine), its proven leadership
in Environmental Forestry which has positioned the Partnership to meet
regulatory challenges on a cost effective basis, its reputation as a
dependable, long-term supplier of quality products, its innovative
approach to providing high quality, value-added products to various
specialty and industrial niche markets and the integration of its
timberlands with its efficient manufacturing processes.
SEASONALITY
Domestic log sales volumes from the Northwest Timberlands are
typically at their lowest point in the second quarter of each year
during spring break-up, when warming weather thaws and softens roadbeds,
restricting access to logging sites. Log sales volumes from the
Southern Timberlands are generally at their lowest point during the
first quarter of each year, as winter rains limit operations in some
areas. Export log sales are affected in part by variations in
inventory, both domestically and in the countries where such logs are
sold, as well as by weather conditions. Winter logging activity in the
Pacific Northwest takes place at lower elevations, where predominantly
second growth logs are found, affecting the volume of higher quality
export logs sold during this time of the year.
Demand for manufactured products is generally lower in the fall and
winter quarters when activity in the construction markets is slower, and
higher in the spring and summer quarters when these markets are more
active. In addition to seasonal fluctuations in demand, prices of
manufactured products can be impacted by weather-related fluctuations in
supply, as production can be hampered during severely cold winter months
and then rebound when warmer spring weather arrives. Working capital
varies with seasonal fluctuations. Log inventories increase going into
the winter season to prepare for reduced harvest during spring break-up
in the Northwest and during the rainy season in the South.
FEDERAL AND STATE REGULATIONS
GENERAL. The activities of the Company are subject to various
federal and state environmental laws and regulations which impose
limitations on the discharge of pollutants into the air and water and
which also establish standards for the treatment, storage and disposal
of solid and hazardous waste and govern the discharge of runoff
stormwater and wastewater. The General Partner believes that the
Company is in substantial compliance with such laws and regulations.
The activities of the Company are also subject to federal and state
regulations regarding natural resources and forestry operations and the
requirements of the federal Occupational Safety and Health Act and
comparable state statutes relating to the health and safety of the
Company's employees. The General Partner believes that the Company is
in substantial compliance with such laws and regulations.
THREATENED AND ENDANGERED SPECIES. The Endangered Species Act
("ESA") protects species threatened with possible extinction. A number
of species indigenous to the Company's timberlands have been listed as
threatened or endangered or have been proposed or are candidates for
such status under the ESA, including the northern spotted owl, marbled
murrelet, gray wolf, red cockaded woodpecker, mountain caribou, grizzly
bear, bald eagle, bull trout and various salmon species. As a result,
the Company'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.
Following the 1990 listing of the northern spotted owl (the "Owl")
as a threatened species, the Partnership sought and received a permit
under the ESA from the United States Fish and Wildlife Service (the
"USFWS") and the National Marine Fisheries Service ("NMFS" and together
with the USFWS, the "Services") that covers the Partnership's forest
management on 170,000 acres in the Cascades Region (the "Planning
Area"). As a part of the permit application, the Partnership prepared a
multi-species habitat conservation plan (the "HCP") that will govern the
Partnership's management activities in the Planning Area during the
50-year life of the permit, in effect now since June 1996. The
implementing agreement for the HCP provides that no additional costs
will be imposed on or land restrictions required from the Partnership in
the Planning Area, absent extraordinary circumstances, so long as the
Partnership is in compliance with the terms of the HCP. The HCP
requires the Partnership to maintain certain levels of wildlife habitat
and to take numerous other mitigation measures, including the protection
of riparian areas.
In consideration for such mitigation, the permit authorizes
forestry practices that are consistent with the HCP even though they may
have an adverse impact on the four listed species currently covered by
the plan and permit, including the Owl. The HCP provides that the
Services will amend the permit to add subsequently listed species
without requiring the Partnership to provide additional mitigation,
absent extraordinary circumstances. Such circumstances would include
situations where continued activity under the HCP would have a
significant material adverse impact on the species and mitigation on
federal land would not alleviate the concern. As an incentive to the
Partnership to create additional wildlife habitat in the Planning Area,
the permit provides certain additional authorization during a second
50-year period if the wildlife habitat within the Planning Area exceeds
levels set in the HCP. The permit thus is expected to provide long-term
certainty and predictability for the Partnership's harvest activities in
the Planning Area. For lands within the Planning Area, the HCP
management restrictions replace existing state and federal restrictions
for Owls.
In December 1995, the Partnership entered into an agreement to
conserve grizzly bears (the "Grizzly Bear Agreement") with the USFWS,
the USFS and the state of Montana covering 83,000 acres of the
Partnership's timberlands in the Swan Valley in western Montana. Under
the Grizzly Bear Agreement, the Partnership has agreed to protect
certain habitat and to minimize the impact of the Partnership's forestry
activities on the grizzly bear. In consideration for this mitigation,
the USFWS authorized forestry practices in the Swan Valley that are
consistent with the agreement.
In November 1996, several organizations filed a lawsuit against the
Secretary of the Interior and certain USFWS and USFS officials in
Federal District Court for the District of Montana challenging the
Grizzly Bear Agreement under the ESA and the National Environmental
Policy Act ("NEPA"). Plum Creek subsequently became a party to the
lawsuit in order to defend the Grizzly Bear Agreement. On October 10,
1997, the Court ruled in favor of Plum Creek and the government,
upholding the Grizzly Bear Agreement under both the ESA and NEPA. An
appeal of this decision is pending before the Ninth Circuit Court of
Appeals.
Although the HCP and Grizzly Bear Agreement have been implemented
and are functioning as expected, there can be no assurance that the
terms of such agreements will remain in force or be sufficient to
protect against subsequent amendment of the ESA or additional listings
thereunder, or against changes to other applicable laws and regulations.
Any such changes could materially and adversely affect the Partnership's
operations. In addition, legal challenges such as those described above
could disrupt the continued operation of the HCP and the Grizzly Bear
Agreement and thereby reduce the level of certainty the Partnership
anticipates gaining from such plans.
In June 1997, the USFWS proposed a rule to list certain population
segments of the bull trout under the ESA. Bull trout are present in
numerous streams and rivers which flow across the Partnership's lands in
Montana, Idaho and Washington. Should listing of the bull trout occur,
timber harvesting and road building in riparian areas could be subject
to additional regulation. The Partnership is unable at this time to
predict the outcome of the listing proposal or the nature or scope of
any land management restrictions that might be imposed to protect the
bull trout as a result of any such listing. The Partnership is
currently working with the Services to develop a conservation plan for
bull trout and other aquatic 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.
The ESA also prohibits the federal government from jeopardizing
species listed under the ESA or from destroying or adversely modifying
their designated critical habitat. Private landowners are potentially
affected by these restrictions if a private activity requires federal
action, such as the granting of access or federal funding. Where there
is such a federal connection, the federal agency involved must consult
with the USFWS or, in the case of anadromous fish, NMFS to determine
that the proposed activity would not jeopardize the listed species or
cause direct or indirect adverse modification of its designated critical
habitat. If the landowner's proposed activity would have such effects,
the USFWS or NMFS must propose, where possible, alternatives or
modifications to the proposed activity.
The Northwest Timberlands are often intermingled with federal land
in or near areas that include the habitats of a number of threatened or
endangered species such as the Owl and the grizzly bear. Access across
federal lands may require federal approval. In the past, the
Partnership's access to such areas has been delayed by administrative
processes and legal challenges and has been restricted under the ESA.
The Partnership believes that access to its lands in the Planning Area
and the Swan Valley should be facilitated by the HCP and the Grizzly
Bear Agreement, although no assurance can be given that further such
delays will not occur.
At this time, the Partnership believes that federal and state laws
and regulations related to the environment and the protection of
endangered species will not have a material adverse effect on the
Partnership's financial position, results of operations or liquidity.
The Partnership anticipates, however, that increasingly strict laws and
regulations relating to the environment, natural resources and forestry
operations, as well as increased social concern over environmental
issues, may result in additional restrictions on the Partnership,
leading to increased costs, additional capital expenditures and reduced
operating flexibility.
LEGISLATION RESTRICTING LOG EXPORTS. Federal legislation
prohibits the sale of unprocessed logs harvested from federal lands
located in the western half of the U.S. if such logs will be exported
from the U.S. by the purchaser thereof, or if such logs will be used by
the purchaser thereof as a substitute for timber from private lands
which is exported by such purchaser. In order to enforce this
substitution prohibition, the legislation requires persons who export
private logs and who wish to purchase federal timber to obtain an
approved federal timber "sourcing area". In 1991, the Partnership
applied for and obtained an approved sourcing area for the Partnership's
Northwest conversion facilities. Under the legislation, sourcing areas
are subject to review and renewal at least every five years. Revisions
to the export law were enacted in November 1997 (the "1997 Amendment")
which the Partnership believes ensures that the Partnership's sourcing
area will be renewed.
In addition, federal legislation prohibits the export of
unprocessed logs harvested from certain state lands. Initially,
Washington and Oregon prohibited the export of all logs harvested from
state lands. The legislation provided, however, that the ban in
Washington state on the export of state logs would become a partial ban
beginning January 1, 1996. The 1997 Amendment made the full ban
permanent. Proposals have also been made from time to time, but to date
have been unsuccessful, to either ban or tax the export of unprocessed
logs harvested from private lands.
INCOME TAX CONSIDERATIONS
PARTNERSHIP STATUS. The Partnership is not a taxable entity and
incurs no federal income tax liability. Each partner is required to
take into account in computing his or her federal income tax liability,
his or her allocable share of income, gains, losses, deductions and
credits of the Partnership, regardless of whether cash distributions are
made. Distributions by the Partnership to a partner are generally not
taxable.
Publicly traded partnerships will be taxed as corporations unless
certain requirements are met. Publicly traded partnerships, such as the
Partnership, whose income consists of at least 90% qualifying income,
however, are treated as partnerships for federal income tax purposes.
Qualifying income includes income from the processing, refining,
marketing or transportation of timber and land sales. The Partnership's
principal sources of income include income from the sale of timber, the
transportation of timber, the operation of sawmills and the production
of plywood and MDF. The Internal Revenue Service ("IRS") has issued two
rulings to the Partnership that income from the operation of sawmills
and the production of plywood and MDF is qualified for this purpose.
TIMBER INCOME. The Taxpayer Relief Act of 1997 lowered the maximum
capital gains tax rate for most taxpayers from 28 percent to 20 percent,
effective for sales of capital assets after May 6, 1997. This rate
reduction is a significant benefit to Unitholders because most of the
Partnership's income is derived from the harvesting of timber which
qualifies under Section 631 of the Internal Revenue Code (the "Code") as
capital gains income. This capital gains benefit is particularly
advantageous when combined with the ordinary deductions (primarily
related to interest and corporate expense) which can be used to offset
other ordinary income, which is generally taxed at higher rates.
SECTION 754 ELECTION. The Partnership has made the election
permitted by Section 754 of the Code. This election requires a
purchaser of depositary units representing limited partner interests
("Units") to adjust his or her share of the basis in the Partnership's
properties ("Inside Basis") pursuant to Section 743(b) of the Code to
fair market value (as reflected by his or her Unit cost). A
Unitholder's allocable share of Partnership income, gains, losses and
deductions is determined in accordance with the Unitholder's unique
basis under this election. Such election is irrevocable and may not be
changed without the consent of the IRS. The Section 743(b) adjustment
is attributed solely to a purchaser of Units and is not added to the
basis of the Partnership's assets associated with all of the
Unitholders.
FEDERAL INCOME TAXATION - GENERAL. Marketing, organized as a
separate corporation, reports all of its income, gains, losses,
deductions and credits arising from its operations on its own tax return
and pays a corporate tax on any resulting net income. Under current
law, Marketing's net income is subject to federal income tax at rates up
to 35%. Losses realized by Marketing do not flow through to the
Partnership, but are carried back and forward, within certain
limitations, to offset taxable income of Marketing in past or future
years. Distributions, if any, received by the Partnership from
Marketing generally would be characterized as either taxable dividends
of current or accumulated earnings and profits, or in the absence of
earnings and profits, as a nontaxable return of capital (to the extent
of the Partnership's tax basis in Marketing's stock) or as taxable
capital gain (after the Partnership's basis in such stock is reduced to
zero).
STATE TAX INFORMATION. The Partnership conducts operations in six
states, four of which (Arkansas, Idaho, Louisiana and Montana) have a
state income tax. To simplify the Unitholders' state filing
requirements, the Partnership files composite returns in each of those
states and pays the state income tax due on behalf of non-resident
Unitholders. Marketing conducts operations in approximately 25 states
for which it pays state corporate income taxes.
TAX-EXEMPT ENTITIES. Certain entities otherwise generally exempt
from federal income taxes (such as individual retirement accounts
("IRAs"), employee benefit plans and other charitable or exempt
organizations) may be subject to federal income tax if their share of
Unrelated Business Taxable Income ("UBTI") exceeds $1,000. For years
prior to 1994, all income derived from publicly traded partnerships was
classified as UBTI. For years after 1993, income is classified as UBTI
dependent upon source. Most of the Partnership's income continues to be
classified as UBTI. Regulated investment companies are required to
derive 90% or more of their gross income from qualified sources, such as
interest or security trading income; gross income from the Partnership
is not qualifying income for purposes of this test.
ENCUMBRANCES
Under the terms of the Partnership's debt agreements, the
Partnership has agreed not to pledge, assign or transfer the
Timberlands, except under limited circumstances. Under the terms of the
First Mortgage Notes of Manufacturing, the holders of these notes have a
first mortgage lien on a significant portion of the Conversion
Facilities. The Partnership guarantees the First Mortgage Notes of
Manufacturing.
The Partnership's title to the timberlands acquired upon formation
of the Company in 1989 and in the Southern Region Acquisition includes
substantially all the related hard rock mineral interests. However, the
Partnership did not obtain the hard rock mineral interests to a
significant portion of the 865,000 acres of timberland purchased in the
Montana Timberland Acquisition. In addition, the Partnership does not
own oil and gas rights to the majority of its Timberlands. Title to the
Timberlands is subject to presently existing easements, rights of way,
flowage and flooding rights, servitudes, cemeteries, camping sites,
hunting and other leases, licenses and permits, none of which materially
adversely affect the value of the Timberlands or materially restrict the
harvesting of timber or other operations of the Partnership.
EMPLOYEES
The Company currently has approximately 425 salaried and 1,975
hourly employees, including employees of the General Partner that manage
the businesses of the Company. The Company believes that its employee
relations are good. The Company's wage scale and benefits are generally
competitive with other forest products companies. Hourly employees (157
employees) at the Huttig, Arkansas lumber mill participate in the UBC
Southern Council of Industrial Workers, Local Union No. 2346. The
Company has been in contract negotiations with union representatives.
To date, these negotiations have not resulted in a contract agreement
and the parties continue to bargain in good faith. The harvesting and
delivery of logs are conducted by independent contractors who are not
employees of the Company.
ITEM 2. PROPERTIES
The Company believes that its Timberlands and Conversion Facilities
are suitable and adequate for current operations. The Conversion
Facilities are maintained through on-going capital investments, regular
maintenance and equipment upgrades. The majority of the Conversion
Facilities are modern, state-of-the-art facilities. The Company owns
all of the Conversion Facilities. Substantially all of the Conversion
Facilities are operated at, or near, maximum capacity levels year round.
See Item 1. Business for discussion of the location and description of
properties and encumbrances related to properties.
ITEM 3. LEGAL PROCEEDINGS
There is no pending or threatened litigation involving the
Partnership which the General Partner believes would have a material
adverse effect on the financial position, the results of operations or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED UNITHOLDER MATTERS
The Partnership's Units are traded on the New York Stock Exchange.
As of February 28, 1998, there were approximately 65,000 beneficial
owners of 46,323,300 outstanding Units.
Trading price data, as reported by the New York Stock Exchange, and
declared cash distribution information for 1997 and 1996 are as follows:
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ---- -------- -------- -------- --------
High $ 29-1/4 $ 32-1/2 $ 36 $ 34-3/8
Low 25-7/8 26-3/4 31-11/16 28
Cash Distribution
per Unit $ 0.55 $ 0.55 $ 0.55 $ 0.55
1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ---- -------- -------- -------- --------
High $ 27-3/4 $ 27-5/8 $ 27 $ 27-1/8
Low 23-3/4 23-1/4 22-7/8 25
Cash Distribution
per Unit $ 0.49 $ 0.51 $ 0.51 $ 0.51
Cash distributions are paid from available cash as defined by the
Partnership's partnership agreement. It is the Company's intention to
maintain the distribution into the foreseeable future; however, there
can be no guarantee. In addition, the Company's debt agreements have
certain restrictive covenants limiting the amount of cash distributions.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
1997 1996(1) 1995 1994 1993(2)
---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
For the year:
(In millions, except
per Unit):
Revenues $ 725.6 $ 633.7 $ 585.1 $ 578.7 $ 501.0
Depreciation,Depletion
and Amortization 70.2 56.9 54.1 54.1 38.8
Operating Income 173.3 165.0 159.0 164.1 126.6
Net Income 111.7 223.6 110.7 112.2 91.4
Capital Expenditures(3) 28.3 19.3 30.7 25.8 29.3
Net Cash Provided by
Operations 190.0 171.9 165.2 155.1 115.3
Net Income per Unit 1.72 4.71 2.17 2.36 1.92
Cash Distributions
Declared per Unit 2.20 2.02 1.96 1.67 1.38
At year end (in millions):
Working Capital 158.3 153.0 111.5 90.5 51.0
Total Assets 1,330.9 1,336.4 826.1 826.2 818.7
Total Debt 763.4 780.8 531.4 544.4 569.9
Partners' Capital(4) $470.3 $491.6 $233.9 $223.0 $192.6
Operating Data:
Northwest Timberlands Fee
Timber Harvested(MMBF) 512 577 562 559 458
Southern Timberlands
Fee Timber Harvested
(thousand Cunits) 799 127
Lumber Production (MMBF) 582 461 433 388 352
Plywood Production
(MMSF) (3/8" basis) 512 334 294 290 289
MDF Production (MMSF)
(3/4" basis) 127 113 102 123 106
</TABLE>
(1) Included in 1996 results of operations was a gain of $105.7 million
related to the Newport Asset Sale. Results include the impact of the
Southern Region Acquisition from October 19, 1996 and the Newport Asset
Sale from October 12, 1996.
(2) During 1993, the Company elected to change its method for valuing
inventories from average cost to the last-in, first-out ("LIFO") method.
This change in accounting lowered 1993 earnings by $8.0 million or $0.18
per Unit. In addition, on August 30, 1993, the Partnership redeemed the
1.25 million Deferred Participation Interests (on a pre-Unit split
basis) for $63.0 million. Basic earnings per Unit for 1993 was $2.03
per Unit. Results subsequent to 1993 include the impact of the November
1993 Montana Timberland Acquisition.
(3) Does not include $560.7 million related to the Southern Region
Acquisition in 1996 or $255.3 million related to the timberlands
acquired as part of the Montana Timberland Acquisition in 1993.
(4) The Partnership issued 5.7 million Units during 1996 for net
proceeds of $144.3 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EVENTS AND TRENDS AFFECTING OPERATING RESULTS
MARKET FORCES. The demand for logs and manufactured wood products
depends upon international and domestic market conditions, the value of
the U.S. dollar in foreign exchange markets, competition, the
availability of substitute products and other factors. In particular,
the demand for logs, lumber, plywood and MDF is affected by residential
and industrial construction, and repair and remodel activity. These
activities are subject to fluctuations due to changes in economic
conditions, tariffs, interest rates, population growth and other
economic, demographic and environmental factors. Additionally, the
demand for logs is impacted by the demand for wood chips in the pulp and
paper markets.
CURRENT MARKET CONDITIONS. Prices for domestic logs in the
Cascades Region for 1997 increased from levels experienced in 1996,
primarily as a result of strong lumber markets in the first half of the
year. However, prices were under downward pressure during the second
half of the year due to declining lumber prices and excess supply. Log
supply increased as a result of the diversion of export quality logs
into domestic markets due to weak export demand and favorable harvesting
conditions. Prices for domestic logs in the Rocky Mountain Region for
1997 have remained relatively flat from those experienced during 1996.
Pulp and paper markets have begun to improve, and, as a result, pulp log
and chip prices have improved modestly in the Cascades and Rocky
Mountain Regions. Domestic log prices in the Southern Region for 1997
increased from levels experienced in the fourth quarter of 1996 as a
result of wet weather limiting supply during the first half of the year.
Pulp log prices in the Southern Region during 1997 were comparable to
the fourth quarter of 1996; however, prices during the second half of
1997 strengthened due to regional supply shortages and anticipated
weather-related curtailments in early 1998.
Export log prices for 1997 decreased by approximately 7% from
levels experienced in 1996. However, fourth quarter 1997 prices
declined by approximately 30% or $300/MBF compared to fourth quarter
1996 prices. The significant price decline was primarily due to the
turmoil in Japan's domestic economy. The weakening of the yen (which
depreciated approximately 14% during 1997) and the increase in the
global supply of logs targeted toward the Japanese market have also
contributed to the price decline. Prices are not expected to materially
improve until the Japanese economy strengthens.
Industry composite indices for lumber commodity prices were 4%
higher in 1997 than in 1996 as a result of favorable housing starts and
strength in the repair and remodel markets. However, fourth quarter
1997 industry composite indices for lumber commodity prices were 9%
lower than third quarter 1997 prices primarily due to adequate supply
and seasonal declines in demand. The supply of lumber in the U.S.
market has increased as a result of increased production and the
diversion of lumber products previously sold in the Japanese market due
to weak Japanese demand. North American lumber production has increased
in all major producing regions, with 1997 production expected to exceed
the prior year's production by 4%. At year-end the demand for lumber
remains strong due to favorable interest rates and strong consumer
confidence. However, there appears to be adequate supply to meet this
demand. Board prices for 1997 in the repair and remodel markets were
higher than 1996 prices as a result of a temporary decline in the supply
of preferred western species, e.g. Ponderosa Pine. However, by
year-end, board prices have declined from the peak price levels achieved
during the second quarter of 1997. The downward price pressure is due
to an increase in imports from European producers as a result of the
weakness in the Japanese economy, an increase in the domestic supply of
boards as a result of both declining dimension prices and an increased
supply of logs, and seasonal slowdown in demand.
Industry composite indices for plywood commodity prices in 1997
were comparable with 1996. Despite continued capacity expansion of
low-cost oriented strand board (OSB), plywood prices remained firm
during 1997 due to strong demand as a result of solid building activity,
low field inventories due to just-in-time buying practices, and reduced
supply due to several mill closures. Inroads by OSB into traditional
plywood markets appear to have slowed, and plywood continues to be the
panel of choice for many applications. However, commodity plywood
prices are expected to remain under downward pressure due to continued
OSB capacity expansion. Annual OSB capacity increased by approximately
20% in 1997 and capacity is expected to increase by an additional 30%
through 2002. Fourth quarter 1997 industrial grade plywood prices
declined compared to third quarter 1997 prices, primarily due to the
seasonal slowdown in demand and the increase in supply as additional
commodity producers targeted industrial customers to avoid head to head
competition with OSB. MDF prices decreased 6% in 1997 compared to 1996
prices. The decline from the prior year was primarily due to continued
industry capacity expansion and aggressive pricing by start-up mills
attempting to gain market share. MDF prices are expected to remain
under downward pressure as a result of the additional capacity, low
industry capacity utilization rates, and turmoil in Asian markets.
Prices continue to decline in Asian markets due to regional economic
turmoil, and as a result additional production is targeted toward the
North American market.
COMPARABILITY OF FINANCIAL STATEMENT PERIODS. As part of its
business strategy, the Company has pursued and will continue to pursue
the acquisition of additional timberlands to increase inventories of fee
timber. On November 1, 1993, the Company completed the Montana
Timberland Acquisition. On October 18, 1996, the Company completed the
Southern Region Acquisition. The Company may also, from time to time,
sell timberlands and facilities if attractive opportunities arise. The
Newport Asset Sale was completed on October 11, 1996. Revenues and
operating income generated by the assets sold in the Newport Asset Sale
were $61.0 million and $15.7 million, respectively, in 1996 and were
$67.8 million and $14.6 million, respectively in 1995. Accordingly, the
comparability of periods covered by the Company's financial statements
is, and in the future may be, affected by the impact of acquisitions and
divestitures.
HARVEST PLANS. The Partnership determines its harvesting plans
based on a number of factors, including age and size of, and species
distribution within, its timber acreage, economic maturity of each
harvest area, environmental considerations and mill requirements both in
the Conversion Facilities and at unaffiliated mills. The timing of
harvests of merchantable timber depends in part on growth cycles and in
part on economic conditions. Harvest levels in the Rocky Mountain
Region have averaged approximately 360 MMBF (excluding the harvest from
the timberlands sold in the Newport Asset Sale) over the last three
years. These harvest levels are expected, on average, to remain
relatively stable over the next two years. By the year 2000, the
Partnership anticipates that it will have nearly completed the
conversion of slower growing forests to younger, more productive stands
in the Rocky Mountain Region, at which time it anticipates a moderate
reduction in the region's harvest levels. Harvest levels in the
Cascades Region have averaged 150 MMBF over the past three years. The
partnership expects that harvest levels in this region will decline
gradually for the foreseeable future as the conversion process in the
region approaches completion.
In the Southern Region, the 1997 harvest level of approximately 800
M Cunits (including both sawlogs and pulpwood) was higher than expected
due to the acceleration of thinning operations to improve growth rates,
and to increase log inventories at the Southern Region mills to prepare
for anticipated first quarter 1998 weather-related harvesting
curtailments. A portion of the Resources Segment income associated with
the higher sawlog harvest (approximately $4 million) was not recognized
on a consolidated basis in 1997, but was deferred and will be recognized
when the Manufacturing Segment converts existing log inventories into
finished products and sells them to third parties. (See Results of
Operations - 1997 Compared to 1996). Harvest levels in the Southern
Region in 1998 are expected to decline by approximately 10% compared to
1997 harvest levels, and the average harvest levels for the years 1999
to 2002 are expected to be moderately lower compared to the 1998 harvest
levels as the Partnership completes the conversion of mature second
growth pine timberlands into intensively managed pine plantations. In
subsequent years, harvest levels are expected to gradually increase as
the Company benefits from faster growing, intensively managed
plantations.
Since harvest plans are influenced by projections of demand, price,
availability of timber from other sources, availability of legal access
and other factors that may be outside of the Partnership's control,
actual harvest levels may vary. The Partnership believes that its
harvest plans are sufficiently flexible to permit modification in
response to short-term fluctuations in the markets for logs and lumber.
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. The
Company believes that the majority of its financial systems are Year
2000 compliant. All necessary modifications will not have a materially
adverse effect on the financial position, the results of operations or
liquidity of the Company and are planned to be in place by the first
quarter of 1999.
The Company is in the process of determining the impact, if any, of
the Year 2000 Issue on its operating systems and the extent to which the
Company is vulnerable to third parties' failure to address their Year
2000 Issues. Based on the Company's preliminary assessments, Year 2000
Issues are not expected to have a material impact on the operations of
the Company.
RESULTS OF OPERATIONS
The following table compares operating income by segment for the
years ended December 31, 1997, 1996 and 1995.
OPERATING INCOME BY SEGMENT
(In Thousands)
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Resources $ 167,054 $ 163,306 $ 139,192
Manufacturing 40,281 22,516 35,567
Other & Eliminations (34,054) (20,834) (15,783)
--------- --------- ---------
Total $ 173,281 $ 164,988 $ 158,976
========== ========== ==========
</TABLE>
1997 COMPARED TO 1996
Resources Segment revenues increased by $41.6 million, or 11.2%, to
$410.9 million in 1997, as compared to $369.3 million in 1996. Such
increase was primarily due to a $100.8 million increase resulting from
the addition of the Southern Timberlands in the Southern Region
Acquisition, offset in part by a decrease in Northwest domestic and
export log sales volume, a decrease in export log sales prices and a
decrease of $24.4 million in revenues from land sales. Domestic log
sales volume in the Northwest Timberlands decreased by 11% compared to
1996, as a result of the October 1996 sale of 107,000 acres of
timberlands in the Rocky Mountain Region. Export sales volumes
decreased by 17% primarily as a result of the diversion of export
quality logs to the domestic market due to weak export markets. Export
prices decreased by 7% compared to 1996, due to decreased demand as a
result of the weakness in Japan's domestic economy and an increase in
the global supply of logs targeted toward the Japanese market. The
decrease in land sales revenue was due to approximately 3,350 acres of
higher and better use land sales in 1997, compared to 21,600 acres in
1996, resulting in revenues of $17.9 million, compared to $42.3 million
in 1996. (See Item 1. Business - Resources Segment - Land Management.)
Resources Segment operating income, excluding land sales, was 39%
as a percentage of revenues for each of the years ended December 31,
1997 and 1996. Resources Segment costs and expenses increased by $37.8
million, or 18.3%, to $243.8 million in 1997 compared to $206.0 million
in 1996. Such increase was primarily due to $54.6 million of additional
costs related to the Southern Region and increased log and haul costs in
the Northwest, offset in part by the decrease in Northwest Timberlands
domestic and export log sales volume and the decrease in land sales.
Northwest Timberlands log and haul costs increased by 8% as a result of
more expensive logging methods required on the areas harvested.
Manufacturing Segment revenues increased by $106.5 million, or
27.5%, to $494.4 million in 1997 compared to $387.9 million in 1996.
Such increase was due to additional revenues of $123.9 million from the
Southern Conversion Facilities, increased plywood and MDF sales volumes
and increased lumber sales prices, offset in part by lower lumber sales
volumes, lower MDF sales prices and decreased Northwest chip revenues.
Plywood sales volume in the Northwest increased by 8% compared to 1996,
primarily as a result of increased production due to additional
production shifts and capital improvements. MDF sales volume increased
by 13% primarily due to greater efficiencies from high-energy refiners
that were installed in the third quarter of 1995. Lumber sales prices
in the Northwest increased by 3% primarily due to strength in the U.S.
housing market and the reduction in supply of certain preferred western
species, which both favorably impacted lumber prices during the first
half of 1997. Northwest lumber sales volume decreased by 15% compared to
1996, primarily due to the October 1996 sale of the Arden sawmill in
Colville, Washington. MDF sales prices decreased by 6% primarily as a
result of continued industry capacity expansion and aggressive pricing
by start-up mills attempting to gain market share. Wood chip sales
volume decreased compared to 1996 due to the sale of the Arden sawmill.
Manufacturing Segment operating income was 8% and 6% as a
percentage of revenues for the years ended December 31, 1997 and 1996,
respectively. Manufacturing Segment costs and expenses increased by
$88.7 million, or 24.3%, to $454.1 million in 1997 compared to $365.4
million in 1996. Such increase was primarily due to $115.8 million of
additional costs related to the Southern Conversion Facilities and
increased Northwest plywood and MDF sales volumes, offset in part by
lower Northwest lumber sales volumes. Southern Region costs and
expenses include an expense of approximately $2 million for severance
costs related to the closure of the plywood plant.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $34.1 million in 1997 compared to $20.8
million in 1996. The variance of $13.3 million was primarily due to an
increase in both corporate overhead and the deferral of intercompany
profit. The increase in corporate overhead is primarily due to expense
resulting from the achievement of a Unit Value Target ("UVT") under the
Company's Long-Term Incentive Plan and Key Employee Long-Term Incentive
Plan during the third quarter of 1997 and the addition of the Southern
Region. The increase in deferred intercompany log profit was a result
of increasing inventory levels in 1997. Mill log inventories levels in
the Southern Region increased as a result of anticipated weather-related
harvesting curtailments during the first quarter of 1998 and, in the
Northwest, due to favorable harvesting conditions during the fourth
quarter. On a combined basis, the Resources Segment's profit on
intercompany log sales is deferred until Manufacturing converts existing
log inventories into finished products and sells them to third parties.
The achievement of a UVT under the Company's Long-Term Incentive
Plan and Key Employee Long-Term Incentive Plan resulted in $5.8 million
of expense in 1997, the majority of which was included in selling,
general and administrative expenses. Interest expense increased by $10.3
million, or 20%, to $60.4 million in 1997, compared to $50.1 million in
1996, primarily due to the issuance of $200 million of senior notes in
the fourth quarter of 1996 related to the Southern Region Acquisition.
Gain on disposition of assets in 1996 included a $105.7 million gain
related to the Newport Asset Sale.
The income allocated to the General Partner increased by $4.1
million during 1997 compared to 1996 due to higher quarterly
distributions to Unitholders and the issuance of 5.7 million additional
Limited Partner Units in the fourth quarter of 1996, offset in part by
lower net income. Net income is allocated to the General Partner based
on two percent of the Company's net income (adjusted for the incentive
distribution paid), plus the incentive distribution. The incentive
distribution is based on a percentage of the quarterly distribution paid
which totaled $2.16 per Unit for the year ended 1997, compared to $2.00
per Unit in 1996.
1996 COMPARED TO 1995
Resources Segment revenues increased by $42.3 million, or 12.9%, to
$369.3 million in 1996, as compared to $327.0 million in 1995. Such
increase was primarily due to a $38.2 million increase in land sales
revenue and an $18.3 million increase as a result of the addition of the
Southern Timberlands in the Southern Region Acquisition, offset in part
by a decrease of $14.4 million in revenues from Northwest Timberland
pulpwood and chip sales. The increase in land sales revenue was due to
approximately 21,600 acres of higher and better use land sales in 1996
resulting in revenues of $42.3 million, compared to $4.1 million in
1995. (See Item 1. Business - Resources Segment - Land Management.)
The decrease in pulpwood and chip revenues was a result of weak pulp and
paper markets and the over supply of available wood fiber. Domestic log
sales volume in the Northwest Timberlands increased by 5%, compared to
1995, as a result of increased harvest levels to take advantage of
favorable pricing resulting from strong product markets. Export prices
decreased by 8%, compared to 1995, due to a higher percentage of lower
valued logs in the 1996 sales mix.
Resources Segment operating income, excluding land sales, was 39%
and 43% as a percentage of revenues for the years ended December 31,
1996 and 1995, respectively. Resources Segment costs and expenses
increased by $18.2 million, or 9.7%, to $206.0 million in 1996 compared
to $187.8 million in 1995. Such increase was primarily due to $10.1
million of additional costs related to the Southern Region, the increase
in land sales, the increase in Northwest Timberlands domestic log sales
volume and increased costs related to longer hauling distances, offset
in part by reduced pulpwood and chip operations.
Manufacturing Segment revenues increased by $12.2 million, or 3.2%,
to $387.9 million in 1996 compared to $375.7 million in 1995. Such
increase was due to additional revenues of $24.7 million from the
Southern Conversion Facilities, increased lumber sales prices and
increased MDF sales volumes, offset in part by lower MDF sales prices
and decreased chip revenues. Lumber sales prices in the Northwest
increased by 6% as compared to the year earlier period as a result of
the robust housing market, strength in the repair and remodel markets
and supply constraints. The U.S. housing market remained unusually
strong throughout most of the summer and fall. Additionally, as a
result of the U.S. - Canada trade agreement, Canada was not able to
significantly increase its output to take full advantage of the
improving U.S. housing market. The Partnership also experienced
favorable pricing in the repair and remodel markets due to reduced
supply as a result of a number of mills targeting production toward the
home construction segment. MDF sales volume was restored to normal
levels during the second half of 1996 and was 8% higher than the sales
volume for 1995. MDF sales volume was unusually low during 1995 due to
production downtime associated with the conversion of production
processes to manufacture high quality, super-refined MDF2 and weak
market conditions. MDF prices decreased by 16% as a result of
significant 1996 capacity expansion. However, the Company experienced
less downward price pressure than the industry as a whole due to
increasing demand for its higher quality MDF2 product. Residual chip
prices decreased by 29% over 1995 due to excess chip inventories
throughout the entire industry. The chip plant was closed during most
of 1996 as a result of weak chip markets.
Manufacturing Segment operating income was 6% and 9% as a
percentage of revenues for the years ended December 31, 1996 and 1995,
respectively. Manufacturing Segment costs and expenses increased by
$25.3 million, or 7.4%, to $365.4 million in 1996 compared to $340.1
million in 1995. Such increase was primarily due to $24.0 million of
additional costs related to the Southern Conversion Facilities and
increased MDF sales volumes.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $20.8 million in 1996 compared to $15.8
million in 1995. The variance of $5.0 million was primarily due to the
release of more intercompany log profit in 1995 than in 1996 as a result
of reducing inventory levels in 1995. On a combined basis, the
Resources Segment's profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products
and sells them to third parties.
Interest expense increased by $3.3 million as a result of both an
increase in outstanding debt and debt issuance costs related to the
October 1996 Southern Region Acquisition. Gain on disposition of assets
increased in 1996 primarily as a result of a $105.7 million gain related
to the Newport Asset Sale.
The income allocated to the General Partner increased by $5.3
million during 1996 compared to 1995 as a result of higher quarterly
distributions to the Unitholders which increased the incentive
distribution paid to the General Partner and an increase in net income.
Net income is allocated to the General Partner based on two percent of
the Company's net income (adjusted for the incentive distribution paid),
plus the incentive distribution. The incentive distribution is based on
a percentage of the quarterly distribution paid which totaled $2.00 per
Unit for the year ended 1996, compared to $1.90 per Unit in 1995.
EXPORT SALES
The Company sells logs and finished wood products for export.
These sales are denominated in U.S. dollars and are generally sold to
Pacific Rim countries, principally Japan, Canada and Europe. Combined
export revenues as a percentage of total revenues were 9%, 11% and 13%
for 1997, 1996, and 1995, respectively.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities was $190.0 million,
$171.9 million and $165.2 million for 1997, 1996 and 1995, respectively.
The increase of $18.1 million in 1997 is primarily the result of a $13.3
million increase in depreciation and depletion and a favorable working
capital variance of $6.9 million. The increase in depreciation,
depletion and amortization is primarily due to increased harvest
activity as a result of the Southern Region Acquisition. The increase
of $6.7 million in 1996 is primarily a result of increased operating
income compared to 1995. During 1997, the Partnership used $9.2 million
of cash generated from operations to fund certain Unit-based benefit
plans. There was no such funding in 1996 or 1995. For further
discussion of these benefit plans, see Note 11 of Notes to Combined
Financial Statements. On December 31, 1997, the Company had $135.4
million of cash and cash equivalents.
The Partnership has an unsecured revolving line of credit ("Line of
Credit") with a group of banks that permits the Partnership to borrow up
to $225 million for general corporate purposes, including up to $20
million of standby letters of credit issued on behalf of the Partnership
or Manufacturing. The Line of Credit matures on December 13, 2001 and
bears a floating rate of interest. As of December 31, 1997, the
Partnership had $161.0 million outstanding under the Line of Credit. As
of January 2, 1998, $135 million of borrowings on the line of credit
were repaid.
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberland in Louisiana
and Arkansas, along with two sawmills, a plywood plant and a nursery in
the Southern Region Acquisition for a total purchase price of $540
million, plus $11.9 million for working capital. The Partnership
financed the Southern Region Acquisition from cash on hand, including
proceeds from certain ordinary course asset dispositions, the proceeds
from the Newport Asset Sale, and two new bank credit facilities dated as
of October 17, 1996, (the "New Bank Facilities"), consisting of the
Line of Credit, initially a five-year $400 million unsecured, revolving
credit facility and an 18-month $250 million unsecured bridge facility
(the "Bridge Facility"). The Partnership borrowed $50 million under the
Bridge Facility and $322 million under the Line of Credit to finance the
Southern Region Acquisition. No further borrowings are permitted under
the Bridge Facility. On October 22, 1996, the Partnership issued
5,600,000 Units for net proceeds of $141.4 million. On November 5,
1996, 115,000 additional Units were issued by the Partnership for net
proceeds of $2.9 million. The combined net proceeds were used to repay
the Bridge Facility and a portion of the amount outstanding under the
Line of Credit.
On November 13, 1996, the Partnership issued $200 million of senior
notes (the "New Notes") in a private placement. The New Notes have an
average life of 13 years and bear interest at a weighted average rate of
7.88% annually. The New Notes are unsecured obligations of the
Partnership and the terms of the New Notes are substantially similar to
the terms of its existing senior notes. The proceeds from the New Notes
were used to repay a portion of the outstanding borrowings under the
Line of Credit. The commitment under the Line of Credit was reduced to
$225 million in November 1996.
The Company's loan agreements contain certain restrictive
covenants, including limitations on harvest levels, sale of assets, cash
distributions and the amount of future indebtedness. In addition, the
Line of Credit requires the maintenance of a required interest coverage
ratio. The Company was in compliance with its debt covenants as of
December 31, 1997.
The Partnership will distribute $0.55 per Unit for the fourth
quarter of 1997. The distribution will equal $34.0 million (including
$8.5 million to the General Partner), and will be paid on February 26,
1998 to Unitholders of record on February 13, 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. It is
anticipated that all debt service and future capital expenditures will
be funded from cash on hand, cash generated from operations, and
borrowings under the Line of Credit.
CAPITAL EXPENDITURES. Capital expenditures for the Resources
Segment were $9.8 million, $6.5 million and $8.5 million for 1997, 1996
and 1995, respectively, excluding $514.9 million related to the Southern
Region Acquisition in 1996. Resources Segment capital expenditures
included the construction of logging roads and reforestation. Capital
expenditures for the Manufacturing Segment were $18.5 million, $12.8
million and $22.2 million for 1997, 1996 and 1995, respectively,
excluding $45.8 million related to the Southern Region Acquisition in
1996. Capital expenditures in 1997 included the reconfiguration of the
Pablo sawmill in western Montana to allow for more efficient processing
of small logs, various lumber and plywood projects to improve
productivity and increase log recovery, as well as replacements and
upgrades of other equipment in several of the Conversion Facilities.
Capital expenditures increased in 1997 as a result of the Southern
Region Acquisition. Capital expenditures decreased in 1996 as compared
to 1995 due to the completion of major improvements at the majority of
the manufacturing facilities.
Planned capital expenditures for the Resources Segment in 1998 are
$14 million, primarily for logging roads and reforestation. The
Manufacturing Segment's 1998 planned capital expenditures are $34
million, including $20 million for the reconfiguration of the
manufacturing facilities in Joyce, Louisiana. The remaining capital
expenditures include various lumber and plywood projects to improve
productivity and increase recovery, as well as replacements and upgrades
of equipment in several of the Conversion Facilities.
EFFECT OF INFLATION
During recent years the Company has generally experienced increased
costs due to the effect of inflation, particularly in the Manufacturing
Segment, on the cost of raw materials, labor, supplies and energy and,
in the Resources Segment, on logging and hauling costs. However, the
Company utilizes the LIFO inventory valuation method for its raw
materials, work-in-process and finished goods inventory which generally
matches current costs to current revenues and thus, tends to reflect the
impact of inflation on cost of goods sold.
OTHER INFORMATION
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and displaying comprehensive income and its components in
financial statements. This statement is effective for fiscal years
beginning after December 15, 1997. The adoption of this standard is not
expected to have a material impact on the presentation of the Company's
financial statements.
In June 1997 the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which establishes
standards for public business enterprises to report financial and
descriptive information about operating segments in annual financial
statements on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS
No. 131 also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This
statement is effective for periods beginning after December 15, 1997.
Management is currently evaluating the requirements of SFAS No. 131.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
(In Thousands, Except Per Unit)
<S> <C> <C> <C>
Revenues .................................. $ 725,571 $ 633,741 $585,074
--------- --------- -------
Costs and Expenses:
Cost of Goods Sold ..................... 503,259 429,897 388,450
Selling, General and Administrative .... 49,031 38,856 37,648
--------- -------- -------
Total Costs and Expenses ............. 552,290 468,753 426,098
--------- -------- -------
Operating Income ........................... 173,281 164,988 158,976
Interest Expense ........................... (60,364) (50,141) (46,836)
Interest Income ............................ 1,113 1,291 1,073
Gain (Loss) on Disposition of Assets - Net . (1,223) 108,852 (133)
Other Expense - Net ........................ (1,031) (1,777)
--------- -------- --------
Income before Income Taxes ................. 111,776 224,990 111,303
Provision for Income Taxes ................. 80 1,391 572
--------- ------- -------
Net Income ................................ $ 111,696 $ 223,599 $110,731
General Partner Interest ................... 31,918 27,777 22,487
--------- -------- -------
Net Income Allocable to Unitholders ....... $ 79,778 $ 195,822 $ 88,244
========= ======== ========
Net Income per Unit ........................$ 1.72 $ 4.71 $ 2.17
========= ======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
------- -------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ..........$ 135,381 $ 123,892
Accounts Receivable ................ 28,698 23,697
Inventories ........................ 58,956 53,884
Timber Contract Deposits ........... 3,711 5,987
Other Current Assets ............... 5,508 15,025
--------- ----------
232,254 222,485
Timber and Timberlands - Net ....... 887,694 922,652
Property, Plant and Equipment - Net 163,556 172,688
Other Assets ........................ 17,393 18,609
--------- ----------
Total Assets ........................$1,300,897 $1,336,434
========= ==========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt ..$ 18,400 $ 17,400
Accounts Payable ................... 12,990 13,443
Interest Payable ................... 9,556 9,530
Wages Payable ...................... 17,156 13,187
Taxes Payable ...................... 4,757 5,275
Workers' Compensation Liabilities .. 1,450 1,450
Other Current Liabilities .......... 9,683 9,212
--------- ----------
73,992 69,497
Long-Term Debt ...................... 584,000 602,400
Line of Credit ...................... 161,000 161,000
Workers' Compensation Liabilities ... 8,466 8,533
Other Liabilities ................... 3,102 3,356
--------- ----------
Total Liabilities ................... 830,560 844,786
--------- ----------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units ............. 469,824 490,105
General Partner ..................... 513 1,543
--------- ----------
Total Partners' Capital ............. 470,337 491,648
--------- ----------
Total Liabilities
and Partners' Capital..............$1,300,897 $1,336,434
========= ==========
</TABLE>
See accompanying Notes to Combined Financial Statements.
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income...........................$ 111,696 $ 223,599 $ 110,731
Adjustments to Reconcile Net
Income to Net Cash Provided By
Operating Activities:
Depreciation, Depletion
and Amortization................ 70,243 56,945 54,097
Loss (Gain) on Property
Dispositions - Net.............. 1,223 (108,852) (2,986)
Working Capital Changes, net of
effect of business acquisition
and disposition:
Accounts Receivable......... (5,001) 8,053 (4,884)
Inventories................. (5,072) (1,052) 7,319
Timber Contract Deposits.... 2,276 1,663 503
Other Current Assets........ 9,517 (10,579) (936)
Accounts Payable............ (453) (2,328) 2,540
Interest Payable............ 26 1,987 (138)
Wages Payable............... 3,969 (77) 2,089
Taxes Payable............... (518) (661) (972)
Workers' Compensation
Liabilities................ (868) (292)
Other Current Liabilities... 471 2,148 (697)
Other............................. 1,599 1,970 (1,160)
-------- -------- -------
Net Cash Provided By
Operating Activities.............. 189,976 171,948 165,214
-------- -------- --------
Cash Flows From Investing Activities:
Southern Region Acquisition.......... (555,966)
Proceeds from Newport Asset Sale..... 148,676
Additions to Other Properties........ (28,348) (19,280) (30,683)
Proceeds from Other Property
Dispositions...................... 917 7,329 6,777
Other................................ (649) (1,806)
-------- -------- -------
Net Cash Used In Investing Activities (28,080) (419,241) (25,712)
-------- -------- -------
Cash Flows From Financing Activities:
Cash Distributions................... (133,007) (110,116) (99,840)
Borrowings on Lines of Credit and
Bridge Facility...................... 814,950 948,250 399,000
Payments on Lines of Credit and
Bridge Facility...................... (814,950) (884,750) (399,000)
Issuance of Long-Term Debt........... 200,000
Retirement of Long-Term Debt......... (17,400) (14,100) (13,000)
Issuance of Limited Partner Units.... 144,297
-------- -------- -------
Net Cash Provided By (Used In)
Financing Activities............... (150,407) 283,581 (112,840)
-------- -------- --------
Increase in Cash and Cash Equivalents 11,489 36,288 26,662
Cash and Cash Equivalents:
Beginning of Year.................... 123,892 87,604 60,942
-------- -------- --------
End of Year..........................$ 135,381 $ 123,892 $ 87,604
======== ========= ========
Supplementary Cash Flow Information
Interest Paid.........................$ 59,650 $ 46,635 $ 46,904
Income Taxes Paid - Net...............$ 737 $ 972 $ 952
</TABLE>
See accompanying Notes to Combined Financial Statements.
PLUM CREEK TIMBER COMPANY, L. P.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
BASIS OF PRESENTATION. Plum Creek Timber Company, L.P. (the
"Partnership"), a Delaware limited partnership, Plum Creek
Manufacturing, L.P. ("Manufacturing"), and Plum Creek Marketing, Inc.
("Marketing"), own, manage and operate approximately 2.4 million acres
of timberland and twelve wood products conversion facilities in the
Northwestern and Southeastern United States. 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. "Resources Segment"
refers to the timber and land management business of the Partnership,
and "Manufacturing Segment" refers to the combined businesses of
Manufacturing and Marketing.
The Resources Segment grows and harvests timber for sale in export
markets, primarily Pacific Rim countries, and domestic markets,
primarily in Arkansas, Idaho, Louisiana, Montana and Washington. The
Manufacturing Segment produces a wide variety of lumber, plywood and
medium density fiberboard ("MDF") products. The Manufacturing Segment
targets these products to retail home centers and various specialty
niche markets as well as housing related markets. The principal markets
for lumber and plywood products are in the United States and, to a
lesser extent, Pacific Rim countries and Europe. MDF markets primarily
consist of North America and, to a lesser extent, Pacific Rim countries.
The combined financial statements of the Company include all the
accounts of the Partnership, Manufacturing and Marketing. All
significant intercompany transactions have been eliminated in
combination.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NET INCOME PER UNIT. Net income per Unit for all periods is
calculated under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share (which the Company
adopted in the fourth quarter of 1997), using the weighted average
number of Units outstanding, divided into the combined Partnership net
income, after adjusting for the General Partner interest. Adoption had
no impact on amounts previously reported for 1996 and 1995. The
weighted average number of Units outstanding was 46,323,300, 41,619,803
and 40,608,300 for the years ended December 31, 1997, 1996 and 1995,
respectively.
REVENUE RECOGNITION. Revenues received from the sale of logs, wood
products and by-products, primarily wood chips, are generally recorded
as revenue at the time of shipment. Sales are denominated in U.S.
dollars. Sales of timberlands identified by the Partnership as higher
and better use lands (for use other than for forest management purposes)
are included in revenues when the sale is consummated.
CASH AND CASH EQUIVALENTS. The Company considers all highly
liquid investments purchased with an original maturity of three months
or less to be cash equivalents. Substantially all of the cash and cash
equivalents are deposited with one financial institution.
INVENTORIES. Logs, work-in-process, and finished goods inventories
are stated at the lower of cost or market on the last-in, first-out
("LIFO") method. Cost for manufactured inventories includes raw
materials, labor, supplies, energy, depreciation and production
overhead. Cost of log inventories includes timber depletion, stumpage,
associated logging and harvesting costs, road costs and production
overhead. The average cost method is used to value the Company's
supplies inventories.
TIMBER AND TIMBERLANDS. Timber and timberlands, including logging
roads, are stated at cost less depletion for timber previously harvested
and accumulated amortization. Cost of the Partnership's timber
harvested is determined based on the volume of timber harvested in
relation to the amount of estimated recoverable timber. The Partnership
estimates its timber inventory using statistical information and data
obtained from physical measurements, site maps, photo-types and other
information gathering techniques. For timberlands located in the
Southern United States, estimates of future growth and costs related
thereto are also made. The cost of logging roads is amortized over the
estimated useful life on a straight-line basis.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is
stated at cost. Improvements and replacements are capitalized.
Depreciation is provided for on a straight-line basis for buildings
(over 20 to 31-1/2 years) and on a unit-of-production basis for
machinery and equipment, which approximates a straight-line basis.
Maintenance and repairs necessary to maintain properties in operating
condition are expensed as incurred. The cost and related accumulated
depreciation of property sold or retired are removed from the accounts
and any gain or loss is recorded.
INCOME TAXES. The Partnership and Manufacturing are not subject
to federal income tax and their income or loss is included in the tax
returns of individual Unitholders. The Partnership files composite
returns in the states in which it does business, paying taxes on behalf
of nonresident Unitholders. State taxes paid on behalf of nonresident
Unitholders are included in other expense. Marketing, as a separate
taxable corporation, provides for income taxes on a separate company
basis.
UNIT-BASED COMPENSATION PLANS. The Company accounts for Unit-based
compensation plans under the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"). The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). See Note 11 to Notes to Combined Financial Statements for
discussion of the above referenced plans.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in financial
statements. This statement is effective for fiscal years beginning
after December 15, 1997. The adoption of this standard is not expected
to have a material impact on the presentation of the Company's financial
statements.
In June 1997 the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which establishes
standards for public business enterprises to report financial and
descriptive information about operating segments in annual financial
statements on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS
No. 131 also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This
statement is effective for fiscal years beginning after December 15,
1997. Management is currently evaluating the requirements of SFAS No.
131.
NOTE 2. ACQUISITION AND DISPOSITION
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberlands in
Louisiana and Arkansas, along with two sawmills, a plywood plant and a
nursery from Riverwood International Corporation for a total cash
purchase price of $540 million, plus $11.9 million for working capital
(the "Southern Region Acquisition"). The acquisition was accounted for
as a purchase and the operations of the business acquired have been
included in the Company's combined financial statements from the date of
acquisition. The total purchase price of $560.7 million, including $4.1
million of acquisition costs and $4.7 million of assumed liabilities,
was allocated as follows (in thousands):
Timber and Timberlands $ 508,834
Property, Plant and Equipment 33,477
Other Assets 18,429
---------
Total Assets Acquired $ 560,740
=========
Total Liabilities Assumed $ 4,745
=========
The Southern Region Acquisition was initially financed with the New
Bank Facilities (see Note 6 to Notes to Combined Financial Statements)
and cash on hand, including the proceeds from the Newport Asset Sale
(discussed below). The proceeds from the issuance of Limited Partner
Units (see Note 8 to Notes to Combined Financial Statements) and the
Senior Notes due 2016 (see Note 6 to Notes to Combined Financial
Statements) were used to repay a portion of the New Bank Facilities.
The unaudited combined results of operations of the Company on a
pro forma basis as though the Southern Region Acquisition, the issuance
of Limited Partner Units and borrowings on the New Bank Facilities and
Senior Notes due 2016 had occurred as of the beginning of the years
ended December 31, 1996 and 1995 are as follows (in thousands, except
per Unit):
1996 1995
---- ----
Revenues $ 771,153 $ 756,569
Net Income 240,540 122,653
Net Income Allocable to Unitholders 210,080 97,073
Net Income per Unit $ 4.54 $ 2.10
The pro forma financial information is not necessarily indicative
of results of operations that would have occurred had the Southern
Region Acquisition occurred as of those dates or of results which may
occur in the future.
On October 11, 1996, the Company consummated the sale to Stimson
Lumber Company of 107,000 acres of timberland in northeastern Washington
and northern Idaho and its sawmill near Colville, Washington (the
"Newport Asset Sale") for approximately $141.9 million, plus $8.7
million for working capital as of the closing date. The Company used
the net proceeds from the Newport Asset Sale to pay a portion of the
purchase price for the Southern Region Acquisition. The sale resulted
in a net gain of approximately $105.7 million, net of expenses of
approximately $2.0 million.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable were presented net of allowances for doubtful
accounts of $1,285,000 and $1,425,000 at December 31, 1997 and 1996,
respectively.
NOTE 4. INVENTORIES
Inventories consisted of the following at December 31 (in
thousands):
1997 1996
---- ----
Raw materials (logs)................ $ 29,177 $ 23,171
Work-in-process..................... 6,108 7,227
Export logs......................... 715 1,048
Finished goods...................... 15,295 15,034
------- -------
51,295 46,480
Supplies............................ 7,661 7,404
------- -------
Total............................... $ 58,956 $ 53,884
======= =======
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 December 31, 1997 and 1996 was
$50.0 million and $46.4 million, respectively.
NOTE 5. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following at December 31
(in thousands):
1997 1996
---- ----
Timber and logging roads - net...... $ 789,513 $ 824,160
Timberlands......................... 98,181 98,492
------- -------
Timber and Timberlands - net........ $ 887,694 $ 922,652
======= =======
Property, plant and equipment consisted of the following at
December 31 (in thousands):
1997 1996
---- ----
Land, buildings and improvements... $ 61,155 $ 60,173
Machinery and equipment............ 235,349 229,513
------- -------
296,504 289,686
Accumulated depreciation........... (132,948) (116,998)
------- -------
Property, Plant and Equipment - net $ 163,556 $ 172,688
======= =======
NOTE 6. BORROWINGS
Long-term debt and the line of credit consisted of the following at
December 31 (in thousands):
1997 1996
---- ----
Senior Notes due 2007............... $ 130,300 $ 138,600
Senior Notes due 2009............... 150,000 150,000
First Mortgage Notes due 2007....... 122,100 131,200
Senior Notes due 2016............... 200,000 200,000
Line of Credit...................... 161,000 161,000
------- -------
Total Long-Term Debt................ 763,400 780,800
Less: Current Portion............... (18,400) (17,400)
------- -------
Long-Term Portion................... $ 745,000 $ 763,400
======= =======
In October 1996, the Partnership entered into two new bank credit
facilities (the "New Bank Facilities"), consisting of a five-year $400
million unsecured, revolving credit facility (the "Line of Credit") and
an 18-month $250 million unsecured bridge facility (the "Bridge
Facility") which were used to finance a portion of the Southern Region
Acquisition. On October 28, 1996, the Bridge Facility was terminated
and on November 13, 1996 the commitment under the Line of Credit was
reduced to $225 million, including standby letters of credit issued on
behalf of the Partnership or Manufacturing. The Line of Credit replaced
two variable rate revolving credit facilities which allowed the
Partnership to borrow up to $135 million and matured through October
2000. The Line of Credit matures on December 13, 2001 and bears
interest at a floating rate (7.0% as of December 31, 1997 and 1996). The
weighted average interest rate for borrowings under the Line of Credit
during 1997 and 1996 was 6.1% and 6.0%, respectively. Borrowings on the
Line of Credit fluctuate daily based on cash needs. As of January 2,
1998, the Partnership had repaid $135.0 million of the borrowings under
the Line of Credit.
On November 13, 1996, the Partnership issued $200 million of senior
notes (the "Senior Notes due 2016") in a private placement. The Senior
Notes due 2016 mature in 2006 through 2016 and bear interest at rates
ranging from 7.74% through 8.05%, payable semiannually. The proceeds
from the Senior Notes due 2016 were used to repay a portion of the
outstanding borrowings under the Line of Credit.
The Senior Notes due 2007 and the First Mortgage Notes due 2007
bear interest of 11.125%, payable semiannually. The Senior Notes due
2009 bear interest at 8.73%, payable semiannually. The Senior Notes and
the First Mortgage Notes (collectively, the "Note Agreements") are
redeemable prior to maturity subject to a premium on redemption, which
is based upon interest rates of U.S. Treasury securities having similar
average maturities as the Note Agreements. At December 31, 1997 and
1996, the premium that would have been due upon early retirement would
have approximated $116 million and $99 million, respectively. The three
series of senior notes are unsecured. The First Mortgage Notes are
collateralized by a significant portion of the property, plant and
equipment of Manufacturing and are guaranteed by the Partnership.
The annual principal payments on the Note Agreements and mandatory
principal payments under the Line of Credit are as follows (in
thousands):
Note Line
Agreements Of Credit
---------- ---------
1998 $ 18,400
1999 18,400
2000 26,950
2001 26,950 $ 161,000
2002 26,950
Thereafter 484,750
All principal and interest payments due under the Note Agreements
are nonrecourse to the General Partner. The Note Agreements and the
Line of Credit contain certain restrictive covenants, including
limitations on harvest levels, sales of assets, cash distributions and
the amount of future indebtedness. In addition, the Line of Credit
requires the maintenance of a required interest coverage ratio. The
Company was in compliance with such covenants at December 31, 1997 and
1996.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair
value due to the short-term maturities of these instruments. The
estimated fair value of the Company's debt, based on current interest
rates for similar obligations with like maturities, was approximately
$843 million and $842 million and was carried at $763 million and $781
million as of December 31, 1997 and 1996, respectively.
NOTE 8. PARTNERS' CAPITAL
The changes in Partners' Capital were as follows (in thousands):
Limited General
Partners Partner Total
--------- -------- --------
January 1, 1995 $ 223,028 $ (51) $ 222,977
Net Income 88,244 22,487 110,731
Cash Distributions (77,155) (22,685) (99,840)
------- ------ -------
December 31, 1995 234,117 (249) 233,868
Net Income 195,822 27,777 223,599
Cash Distributions (84,131) (25,985) (110,116)
Issuance of Limited Partner Units 144,297 144,297
------- ------ -------
December 31, 1996 490,105 1,543 491,648
Net Income 79,778 31,918 111,696
Cash Distributions (100,059) (32,948) (133,007)
------- ------ -------
December 31, 1997 $ 469,824 $ 513 $ 470,337
======== ====== =======
The total number of Units outstanding at December 31, 1997 and 1996
was 46,323,300. On October 22, 1996, the Partnership issued 5,600,000
Units for net proceeds of $141.4 million. On November 5, 1996, 115,000
additional Units were issued by the Partnership for net proceeds of $2.9
million. The combined proceeds are net of issuance costs of $8.6
million. The combined net proceeds were used to repay the Bridge
Facility and a portion of the amounts outstanding under the Line of
Credit.
In accordance with the Partnership Agreement, the General Partner
is authorized to make quarterly cash distributions. For the years ended
December 31, 1997, 1996 and 1995, the General Partner declared $2.20,
$2.02 and $1.96 per Unit, respectively, to be paid to the Partnership's
Unitholders. If quarterly cash distributions exceed $0.21-2/3 per Unit,
the General Partner is provided with an incentive distribution. See
Note 11 to Notes to Combined Financial Statements.
NOTE 9. INCOME TAXES
The provision for income taxes was as follows (in thousands):
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Current Federal $ 43 $ 1,201 $ 464
Current State 37 190 108
---- ----- ----
Total $ 80 $ 1,391 $ 572
==== ===== ====
Reconciliation of the federal statutory rate to the effective
income tax rate was as follows:
1997 1996 1995
---- ---- ----
Statutory tax rate................... 35.0% 35.0% 35.0%
State tax net of federal tax benefit. 0.0 0.1 0.1
Nontaxable partnership income........(34.9) (34.6) (34.1)
Other................................ 0.0 0.1 (0.5)
----- ----- -----
Effective tax rate................... 0.1% 0.6% 0.5%
===== ===== =====
NOTE 10. EMPLOYEE PENSION AND RETIREMENT PLANS
PENSION PLAN. The Company's pension plan is a non-contributory
defined benefit plan covering substantially all employees. The salaried
employee benefits are based on years of credited service and the highest
five-year average compensation levels, and the hourly employee benefits
are based on years of service. Contributions to the plan are based upon
the Projected Unit Credit actuarial funding method and are limited to
amounts that are currently deductible for tax purposes.
The following table sets forth the funded status of the Company's
pension plan at December 31 (in thousands):
1997 1996
---- ----
Actuarial present value of benefit
obligations:
Vested.............................. $ 40,670 $ 34,704
Non-vested.......................... 1,258 882
------ -------
Accumulated benefit obligation.......... $ 41,928 $ 35,586
====== =======
Projected benefit obligation............ $ 51,168 $ 44,386
Plan assets, primarily marketable equity
and debt securities, at fair market value 56,203 48,300
------ -------
Plan assets in excess of projected
benefit obligation...................... 5,035 3,914
Unrecognized net loss.................... 1,124 2,954
Prior service cost not yet recognized.... (1,128) (1,200)
------ ------
Prepaid pension cost..................... $ 5,031 $ 5,668
====== ======
The components of the Company's pension cost were as follows (in
thousands):
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Service cost................ $ 2,464 $ 1,910 $ 1,277
Interest cost on projected
benefit obligation.......... 3,233 3,103 2,886
Actual return on plan assets (9,741) (7,568) (6,210)
Net amortization and deferral 6,181 4,548 3,273
----- ----- -----
Net pension cost............ $ 2,137 $ 1,993 $ 1,226
====== ===== =====
The following assumptions were used in the accounting for the
Company's pension plan as of December 31:
1997 1996 1995
---- ---- ----
Weighted average discount rate......... 7.0% 7.5% 7.0%
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of
return on plan assets.................. 8.5% 8.5% 8.5%
The Company adopted two nonqualified defined benefit pension plans
for executives and key management employees effective January 1, 1993
and January 1, 1994, respectively. The projected benefit obligation for
these plans was $5.1 million and $4.4 million as of December 31, 1997
and 1996, respectively. The Company's pension expense for these plans
was $0.8 million, $0.9 million and $0.6 million for 1997, 1996 and 1995,
respectively.
THRIFT AND PROFIT SHARING PLAN. The Company sponsors an employee
thrift and profit sharing plan under section 401 of the Internal Revenue
Code. This plan covers substantially all full-time employees. The
Company matches employee contributions of up to six percent of
compensation at rates ranging from 35 to 100 percent, depending upon the
Company's financial performance. Amounts charged to expense were $3.9
million, $2.6 million and $2.7 million during 1997, 1996 and 1995,
respectively.
OTHER BENEFIT PLANS. Certain executives and key employees of the
General Partner participate in incentive benefit plans established by
the General Partner which provide for the granting of Units and/or cash
bonuses upon meeting performance objectives. See Note 11 to Notes to
Combined Financial Statements.
NOTE 11. RELATED-PARTY TRANSACTIONS
The General Partner has overall responsibility for the management
of the Company. The General Partner has a two percent general partner
interest in the income and cash distributions of the Partnership,
subject to certain adjustments, and owns two percent and four percent
interests in Manufacturing and Marketing, respectively. The Company
reimburses the General Partner for the actual cost of administering its
businesses. Amounts reimbursed to the General Partner for such costs
were $6.7 million, $5.7 million and $5.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
Effective October 1, 1993, the General Partner established a Long-Term
Incentive Plan ("LTIP") which authorizes granting up to 2,000,000
Unit Appreciation Rights ("UARs") to certain executives of the General
Partner. When any of five Unit Value Targets ("UVTs") established by
the LTIP are met through a combination of Unit market appreciation plus
Partnership cash distributions, a percentage of the UARs is triggered
and Units are credited to the executives' accounts. The performance
period under the LTIP during which UVTs may be met ends December 31,
1998, at which time any earned Units will be distributed. Earned Units
generally vest at the end of the performance period. Costs incurred by
the General Partner in administering and funding the LTIP are borne by
the Partnership.
The General Partner has granted 1,402,267 UARs, net of forfeitures,
which could result in a total of 705,142 Units being earned under the
LTIP if all UVTs were met. Units in the executives' accounts will earn
additional Units equal to the amount of any subsequent Partnership cash
distributions. As of December 31, 1997, four UVTs had been achieved and
486,023 Units had been allocated to the executives' accounts. Total
compensation expense with respect to the achievement of these four UVTs
will be approximately $14.0 million, of which $6.2 million, $3.1 million
and $1.0 million was recognized in 1997, 1996 and 1995, respectively.
Compensation expense of $2.8 million will be recognized over the
remaining performance period ending December 31, 1998.
Effective January 1, 1994, the General Partner established a Key
Employee Long-Term Incentive Plan ("KLTIP") for certain of its other key
employees which authorizes granting up to 500,000 UARs. The KLTIP
provisions are similar to the LTIP described above. The General Partner
has granted 383,867 UARs, net of forfeitures, which could result in a
total of 193,031 Units being earned under the KLTIP if all UVTs were
met. Units in the participants' accounts will earn additional Units
equal to the amount of any subsequent Partnership cash distributions.
As of December 31, 1997, four UVTs had been achieved and 120,762 Units
had been allocated to the key employees' accounts. Total compensation
expense with respect to the achievement of these four UVTs will be
approximately $3.5 million, of which $1.6 million, $0.8 million and $0.5
million was recognized in 1997, 1996 and 1995, respectively.
Compensation expense of $0.6 million will be recognized over the
remaining performance period ending December 31, 1998. Costs incurred
by the General Partner in administering and funding the plan are borne
by the Partnership. The estimated difference between compensation cost
related to the LTIP and KLTIP under APB 25 and SFAS 123 was less than
$1.5 million for each of the years ended December 31, 1997, 1996, and
1995.
The Partnership is required under the Partnership Agreement to
reimburse the General Partner for compensation costs related to the
management of the Partnership, including the purchase of Units
associated with these benefit plans. During 1997, the Partnership paid
the General Partner for its purchase of 280,482 Units at a total cost of
$9.2 million.
Effective January 1, 1994, the General Partner established a
Management Incentive Plan ("MIP") for certain executives of the General
Partner. An annual bonus of up to 100% of the respective executive's
base salary may be awarded if certain performance objectives established
by the General Partner are met by the Company and by the executive.
One-half of the bonus will be paid annually in cash and the remaining
half will be converted into Units at fair market value and will be
distributed at the end of three years. Units in executives' accounts
will earn additional Units equal to the amount of any subsequent
Partnership cash distributions. Costs incurred in administering and
funding the MIP have been borne by the General Partner.
Net income is allocated to the General Partner based on two percent
of the Company's combined net income (adjusted for the incentive
distribution), plus the incentive distribution, as provided by the
Partnership Agreement. The incentive distributions paid in 1997, 1996
and 1995 were approximately $30.3 million, $23.8 million and $20.7
million, respectively.
Certain conflicts of interest could arise as a result of the
relationships described above. The Board of Directors and management of
the General Partner have a duty to manage the Company in the best
interests of the Unitholders and, consequently, must exercise good faith
and integrity in handling the assets and affairs of the Company.
Related non-interest bearing receivables and payables between the
General Partner and the Company are settled in the ordinary course of
business. As of December 31, 1997 and 1996, the Company had receivables
from the General Partner of $138,502 and $168,600, respectively.
NOTE 12. SOUTHERN REGION RECONFIGURATION
On November 4, 1997, the Company announced plans to reconfigure its
manufacturing complex at Joyce, Louisiana to add value in targeted high
margin, higher growth lumber product areas. With an investment of
approximately $22 million, the Company plans to build a state-of-the-art,
high-volume sawmill that will allow the Company to capture greater
value from its timber resource through improved productivity and
efficiency. As part of the plan, the existing plywood plant and
sawmill, which currently employ 430 people, will be closed in stages,
commencing in the third quarter of 1998. The new sawmill will employ
approximately 230 people and is expected to be fully operational in the
fourth quarter of 1998. The Company recorded an expense of
approximately $2 million during the fourth quarter of 1997 for severance
costs related to the closure of the plywood plant.
NOTE 13. COMMITMENTS AND CONTINGENCIES
A portion of the Company's log requirements is acquired through
contracts with public and private sources. Except for required
deposits, no amounts are recorded until such time as the Company
harvests the timber. At December 31, 1997 and 1996, the unrecorded
amounts of those contract commitments were approximately $15.8 million
and $14.6 million, respectively. During 1993, the Partnership entered
into a log sourcing contract to sell logs to a customer over a ten-year
period ending in 2003, based upon prevailing market rates. The
Partnership has an annual commitment to supply pulpwood and residual
chips to a customer for a 20-year period ending in 2016, based upon
prevailing market rates.
There are no contingent liabilities which would have a materially
adverse effect on the financial position, the results of operations or
liquidity of the Company.
The Company is subject to regulations regarding harvest practices
and is involved in various legal proceedings, including environmental
matters, incidental to its business. While administration of current
regulations and any new regulations or proceedings have elements of
uncertainty, the General Partner believes that none of the pending legal
proceedings or regulatory matters will have a materially adverse effect
on the financial position, the results of operations or liquidity of the
Company.
The Company leases buildings and equipment under non-cancelable
operating lease agreements. The Company's operating lease expense was
$2.9 million, $2.3 million and $2.2 million for 1997, 1996 and 1995,
respectively. The following summarizes the future minimum lease
payments (in thousands):
1998 $ 2,823
1999 2,549
2000 2,275
2001 1,916
2002 1,678
Thereafter 1,811
------
Total $ 13,052
=======
NOTE 14. SEGMENT INFORMATION
Year Ended December 31,
(In Thousands)
1997 1996 1995
Revenues ---- ---- ----
Resources $ 410,873 $ 369,335 $ 327,043
Manufacturing 494,372 387,875 375,677
Eliminations (179,674) (123,469) (117,646)
--------- --------- ---------
$ 725,571 $ 633,741 $ 585,074
========= ========= =========
Operating Income
Resources $ 167,054 $ 163,306 $ 139,192
Manufacturing 40,281 22,516 35,567
Other and Eliminations (34,054) (20,834) (15,783)
--------- --------- ---------
$ 173,281 $ 164,988 $ 158,976
======== ========= =========
Depreciation, Depletion
and Amortization
Resources $ 47,966 $ 36,160 $ 35,394
Manufacturing 22,277 20,785 18,703
--------- --------- ---------
$ 70,243 $ 56,945 $ 54,097
========= ========= =========
Identifiable Assets
Resources $1,058,719 $1,098,203 $ 604,510
Manufacturing 278,323 262,380 244,877
Eliminations (36,145) (24,149) (23,301)
---------- ---------- ---------
$1,300,897 $1,336,434 $ 826,086
========== =========== =========
Capital Expenditures
Resources $ 9,792 $ 6,470 $ 8,481
Manufacturing 18,556 12,810 22,202
---------- ---------- ---------
$ 28,348 $ 19,280 $ 30,683
=========== =========== ==========
Revenues include both sales to unaffiliated customers and
intersegment sales. Intersegment sales prices are determined quarterly,
based upon estimated market prices and terms in effect at that time and
are eliminated in combination. Intersegment sales from the Resources
Segment to the Manufacturing Segment were $179.7 million, $123.5 million
and $117.6 million for 1997, 1996 and 1995, respectively.
Operating income from the Resources Segment includes land sales of
$14.0 million, $35.4 million and $1.6 million, for 1997, 1996 and 1995,
respectively. Combined export revenues, primarily to Pacific Rim
countries, as a percentage of total revenues were 9%, 11% and 13%, for
1997, 1996 and 1995, respectively. During 1995, net sales to one
Resources Segment customer were approximately 10% of combined revenues.
Capital expenditures do not include $514.9 million and $45.8
million in 1996 for the Resources Segment and Manufacturing Segment,
respectively, related to the Southern Region Acquisition.
NOTE 15. SUBSEQUENT EVENT
On January 20, 1998, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.55 per Unit for
the fourth quarter of 1997. Total distributions will approximate $34.0
million (including $8.5 million to the General Partner) and will be paid
on February 26, 1998 to Unitholders of record on February 13, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Unitholders and Directors of the General Partner of
Plum Creek Timber Company, L.P.
We have audited the accompanying combined balance sheet of Plum Creek
Timber Company, L.P. as of December 31, 1997 and 1996, and the related
combined statements of income and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined financial position of
Plum Creek Timber Company, L.P. at December 31, 1997 and 1996, and the
combined results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Seattle, Washington
January 20, 1998
REPORT OF MANAGEMENT
The management of Plum Creek Timber Company, L.P. is responsible
for the preparation, fair presentation, and integrity of the information
contained in the financial statements in this Annual Report on Form 10-K.
These statements have been prepared in accordance with generally
accepted accounting principles and include amounts determined using
management's best estimates and judgements.
The Company maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions
are recorded properly to produce reliable financial records. The system
of internal controls includes appropriate divisions of responsibility,
established policies and procedures (including a code of conduct to
foster a strong ethical climate) that are communicated throughout the
Company, and careful selection, training and development of our people.
The Company conducts a corporate audit program to provide assurance that
the system of internal controls is operating effectively.
Our independent certified public accountants have performed audit
procedures deemed appropriate to obtain reasonable assurance that the
financial statements are free of material misstatement.
The Board of Directors provides oversight to the financial
reporting process through its Audit and Compliance Committee, which
meets regularly with management, corporate audit, and the independent
certified public accountants to review the activities of each and to
ensure that each is meeting its responsibilities with respect to
financial reporting and internal controls.
/s/ RICK R. HOLLEY
Rick R. Holley
President and Chief Executive Officer
/s/ DIANE M. IRVINE
Diane M. Irvine
Vice President and Chief Financial Officer
SUPPLEMENTARY FINANCIAL INFORMATION
Combined Quarterly Information
(Unaudited)
(In Thousands, Except per Unit)
1997 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---- ------- ------- ------- -------
Revenues $ 171,248 $ 171,962 $ 198,663 $ 183,698
Operating Income 43,222 42,683 47,666 39,710
Net Income 27,358 27,224 32,801 24,313
Net Income Allocable
to Unitholders 20,147 19,006 24,472 16,153
Net Income per Unit $0.43 $0.42 $0.52 $0.35
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr (2)
- ---- ------- ------- ------- -----------
Revenues $ 127,694 $ 138,744 $ 173,039 $ 194,264
Operating Income 27,398 32,750 48,449 56,391
Net Income 15,915 20,977 36,776 149,931
Net Income Allocable
to Unitholders 10,197 15,158 30,198 140,269
Net Income per Unit (1) $0.25 $0.37 $0.75 $3.14
(1) Net income per Unit is computed independently for each of the
quarters presented. Therefore, the sum of the quarterly net income per
Unit does not equal the total computed for the year due to the issuance
of Units during the fourth quarter of 1996. See Note 8 to Notes to
Combined Financial Statements.
(2) Included in fourth quarter 1996 results of operations was a gain of
$105.7 million related to the Newport Asset Sale.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10. and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT and EXECUTIVE COMPENSATION, Item 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT and Item 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS will be filed by amendment to
this Form 10-K on Form 10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements and Supplementary Financial Information
The following combined financial statements of the Company are
included in Part II, Item 8 of this Form 10-K:
Combined Statement of Income 30
Combined Balance Sheet 31
Combined Statement of Cash Flows 32
Notes to Combined Financial Statements 33
Report of Independent Accountants 48
Report of Management 49
Supplementary Financial Information 50
(2) Financial Statement Schedules
Not applicable.
(3) 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. Exhibits designated by a positive sign ("+") indicates
management contracts or compensatory plans or arrangements required to
be filed as an exhibit to this report.
INDEX TO EXHIBITS
Exhibit
Designation Nature of Exhibit
2.1 Asset Purchase Agreement Among Plum Creek Timber Company, L.P.,
Riverwood International Corporation and New River Timber, LLC, dated
August 6, 1996 (Previously filed as Exhibit 2 to the Current Report on
Form 8-K dated August 7, 1996, filed by Riverwood Holding, Inc.,
Commission file no. 1-11113, and incorporated herein by reference).
2.2 Amendment to Asset Purchase Agreement Among Plum Creek Timber
Company, L.P., Riverwood International Corporation and New River Timber,
LLC, dated October 18, 1996 (Form 8-K, File No. 1-10239, filed October
23, 1996).
2.3 Timberland Purchase and Sale Agreement for Newport Unit Timberlands
by and between Plum Creek Timber Company, L.P. as Seller, and Stimson
Lumber Company as Purchaser, dated as of September 27, 1996 (Form 8-K,
File No. 1-10239, filed October 23, 1996).
2.4 Mill Asset Purchase and Sale Agreement By and Between Plum Creek
Manufacturing, L.P. as Seller, and Stimson Lumber Company as Purchaser,
dated as of September 27, 1996 (Form 8-K, File No. 1-10239, filed
October 23, 1996).
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, No. 1-10239, for the quarter ended
September 31, 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).
4.1 Form of Deposit Agreement by and among Plum Creek Timber Company,
L.P. and The First National Bank of Boston, dated as of May 1989, (Form
S-1, Regis. No. 33-28094, filed May 1989).
4.2 Form of Transfer Application (Form S-1, Regis. No. 33-28094, filed
May 1989).
4.3 Senior Note Agreement, dated May 31, 1989, 11 1/8 percent Senior
Notes due June 8, 2007, Plum Creek Timber Company, L. P. (Form 10-Q, No.
1-10239, for the quarter ended June 30, 1989). Amendment No. 1, consent
and waiver dated January 1, 1991 to Senior Note Agreement, dated May 31,
1989, 11 1/8 percent Senior Notes due June 8, 2007, Plum Creek Timber
Company, L.P. (Form 8 Amendment No. 1, for the year ended December 31,
1990). Amendment No. 2, consent and waiver dated September 1, 1993 to
the Senior Note Agreement (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1993). Amendment No. 3, Senior Note Agreement
Amendment dated May 20, 1994 (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1994). Senior Note Agreement Amendment dated May 31,
1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30, 1996).
Senior Note Agreement Amendment dated April 15, 1997 (Form 10-Q, No. 1-10239,
for the quarter ended September 30, 1997).
4.4 Mortgage Note Agreement, dated May 31, 1989, 11 1/8 percent First
Mortgage Notes due June 8, 2007, Plum Creek Manufacturing, Inc. (Form
10-Q, No. 1-10239, for the quarter ended June 30, 1989). Amendment No.
1, consent and waiver dated January 1, 1991 to Mortgage Note Agreement,
dated May 31, 1989, 11 1/8 percent First Mortgage Notes due June 8,
2007, Plum Creek Manufacturing, Inc., now Plum Creek Manufacturing, L.P.
(Form 8 Amendment No. 1, for the year ended December 31, 1990).
Amendment No. 2, consent and waiver dated September 1, 1993 to the
Mortgage Note Agreement (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1993). Amendment No. 3, Mortgage Note Agreement
Amendment dated May 20, 1994 (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1994). Amendment to Mortgage Note Agreement dated
June 15, 1995 (Form 10-Q, No. 1-10239, for the quarter ended September
30, 1995). Mortgage Note Agreement Amendment dated May 31, 1996 (Form
10-Q, No. 1-10239, for the quarter ended June 30, 1996). Mortgage Note
Agreement Amendment dated April 15, 1997 (Form 10-Q, No. 1-10239, for
the quarter ended September 30, 1997).
4.5 Senior Note Agreement, dated August 1, 1994, 8.73% Senior Notes due
August 1, 2009, Plum Creek Timber Company, L.P. (Form 10-K/A, Amendment
No. 1, for the year ended December 31, 1994). Senior Note Agreement
Amendment dated as of October 15, 1995 (Form 10-K, No. 1-10239, for the
year ended December 31, 1995). Senior Note Agreement Amendment dated
May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1996). Senior Note Agreement Amendment dated April 15, 1997 (Form 10-Q,
No. 1-10239, for the quarter ended September 30, 1997).
4.6 Senior Note Agreement, dated as of November 13, 1996, $75 million
Series A due November 13, 2006, $25 million Series B due November 13,
2008, $75 million Series C due November 13, 2011, $25 million Series D
due November 13, 2016 (Form 10-K, No. 1-10239, for the year ended
December 31, 1996).
10.1 Amended and Restated Revolving Credit Agreement dated as of
December 13, 1996 among Plum Creek Timber Company, L.P., Bank of America
National Trust and Savings Association, as Agent, NationsBank of North
Carolina, N.A., as senior co-agent and the Other Financial Institutions
Party Hereto (Form 10-K, No. 1-10239, for the year ended December 31,
1996).
10.2+ Plum Creek Supplemental Benefits Plan (Form 10-K/A, Amendment No.
1, for the year ended December 31, 1994). First Amendment to the Plum
Creek Supplemental Benefits Plan (Form 10-Q, No. 1-10239, for the
quarter ended September 30, 1995).
10.3+ Long-Term Incentive Plan, Plum Creek Management Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1993).
First Amendment to the Plum Creek Management Company, L.P. Long-Term
Incentive Plan (Form 10-Q, No. 1-10239, for the quarter ended September
30, 1995).
10.4+ Management Incentive Plan, Plum Creek Management Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1993).
10.5+ Executive and Key Employee Salary and Incentive Compensation
Deferral Plan, Plum Creek Management Company, L.P. (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1994).
10.6+ Deferred Compensation Plan for Directors, PC Advisory Corp. I
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1994).
10.7+ Plum Creek Director Unit Ownership and Deferral Plan (Form 10-K,
No. 1-10239, for the year ended December 31, 1996).
21 Subsidiaries of the Registrant. (Form 8 Amendment No. 1, for the
year ended December 31, 1990).
27* Financial Data Schedule for the year ended December 31, 1997. See
attached exhibit.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 (or 15(d)) 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/ RICK R. HOLLEY
-------------------
Rick R. Holley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, in the
capacities and on the dates indicated, on behalf of, as applicable, Plum
Creek Management Company, L.P., the registrant's general partner, and/or
PC Advisory Corp. I, the general partner of the managing general partner
of the registrant's general partner.
By /s/ DAVID D. LELAND Date 2-26-98
-------------------
David D. Leland
Chairman of the Board of Directors, PC Advisory Corp. I
By /s/ IAN B. DAVIDSON Date 2-27-98
-------------------
Ian B. Davidson
Director, PC Advisory Corp. I
By /s/ GEORGE M. DENNISON Date 2-27-98
----------------------
George M. Dennison
Director, PC Advisory Corp. I
By /s/ CHARLES P. GRENIER Date 3-2-98
-----------------------
Charles P. Grenier
Executive Vice President, Plum Creek Management Co., L.P.
Director, PC Advisory Corp. I,
By /s/ RICK R. HOLLEY Date 2-26-98
-----------------------
Rick R. Holley
President and Chief Executive Officer,
Plum Creek Management Co., L.P.
Director, PC Advisory Corp. I
By /s/ WILLIAM E. OBERNDORF Date 2-26-98
-------------------------
William E. Oberndorf
Director, PC Advisory Corp. I
By /s/ WILLIAM J. PATTERSON Date 2-26-98
------------------------
William J. Patterson
Director, PC Advisory Corp. I
By /s/ JOHN H. SCULLY Date 2-26-98
------------------------
John H. Scully
Director, PC Advisory Corp. I
By /s/ DIANE M. IRVINE Date 2-26-98
------------------------
Diane M. Irvine
Vice President and Chief Financial Officer,
Plum Creek Management Co., L.P.
(Principal Financial and Accounting Officer)
INDEX TO 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. Exhibits designated by a positive sign ("+") indicates
management contracts or compensatory plans or arrangements required to
be filed as an exhibit to this report.
Exhibit
Designation Nature of Exhibit
2.1 Asset Purchase Agreement Among Plum Creek Timber Company, L.P.,
Riverwood International Corporation and New River Timber, LLC, dated
August 6, 1996 (Previously filed as Exhibit 2 to the Current Report on
Form 8-K dated August 7, 1996, filed by Riverwood Holding, Inc.,
Commission file no. 1-11113, and incorporated herein by reference).
2.2 Amendment to Asset Purchase Agreement Among Plum Creek Timber
Company, L.P., Riverwood International Corporation and New River Timber,
LLC, dated October 18, 1996 (Form 8-K, File No. 1-10239, filed October
23, 1996).
2.3 Timberland Purchase and Sale Agreement for Newport Unit Timberlands
by and between Plum Creek Timber Company, L.P. as Seller, and Stimson
Lumber Company as Purchaser, dated as of September 27, 1996 (Form 8-K,
File No. 1-10239, filed October 23, 1996).
2.4 Mill Asset Purchase and Sale Agreement By and Between Plum Creek
Manufacturing, L.P. as Seller, and Stimson Lumber Company as Purchaser,
dated as of September 27, 1996 (Form 8-K, File No. 1-10239, filed
October 23, 1996).
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, No. 1-10239, for the quarter ended
September 31, 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).
4.1 Form of Deposit Agreement by and among Plum Creek Timber Company,
L.P. and The First National Bank of Boston, dated as of May 1989, (Form
S-1, Regis. No. 33-28094, filed May 1989).
4.2 Form of Transfer Application (Form S-1, Regis. No. 33-28094, filed
May 1989).
4.3 Senior Note Agreement, dated May 31, 1989, 11 1/8 percent Senior
Notes due June 8, 2007, Plum Creek Timber Company, L. P. (Form 10-Q, No.
1-10239, for the quarter ended June 30, 1989). Amendment No. 1, consent
and waiver dated January 1, 1991 to Senior Note Agreement, dated May 31,
1989, 11 1/8 percent Senior Notes due June 8, 2007, Plum Creek Timber
Company, L.P. (Form 8 Amendment No. 1, for the year ended December 31,
1990). Amendment No. 2, consent and waiver dated September 1, 1993 to
the Senior Note Agreement (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1993). Amendment No. 3, Senior Note Agreement
Amendment dated May 20, 1994 (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1994). Senior Note Agreement Amendment dated May 31,
1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30, 1996).
Senior Note Agreement Amendment dated April 15, 1997 (Form 10-Q, No. 1-10239,
for the quarter ended September 30, 1997).
4.4 Mortgage Note Agreement, dated May 31, 1989, 11 1/8 percent First
Mortgage Notes due June 8, 2007, Plum Creek Manufacturing, Inc. (Form
10-Q, No. 1-10239, for the quarter ended June 30, 1989). Amendment No.
1, consent and waiver dated January 1, 1991 to Mortgage Note Agreement,
dated May 31, 1989, 11 1/8 percent First Mortgage Notes due June 8,
2007, Plum Creek Manufacturing, Inc., now Plum Creek Manufacturing, L.P.
(Form 8 Amendment No. 1, for the year ended December 31, 1990).
Amendment No. 2, consent and waiver dated September 1, 1993 to the
Mortgage Note Agreement (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1993). Amendment No. 3, Mortgage Note Agreement
Amendment dated May 20, 1994 (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1994). Amendment to Mortgage Note Agreement dated
June 15, 1995 (Form 10-Q, No. 1-10239, for the quarter ended September
30, 1995). Mortgage Note Agreement Amendment dated May 31, 1996 (Form
10-Q, No. 1-10239, for the quarter ended June 30, 1996). Mortgage Note
Agreement Amendment dated April 15, 1997 (Form 10-Q, No. 1-10239, for
the quarter ended September 30, 1997).
4.5 Senior Note Agreement, dated August 1, 1994, 8.73% Senior Notes due
August 1, 2009, Plum Creek Timber Company, L.P. (Form 10-K/A, Amendment
No. 1, for the year ended December 31, 1994). Senior Note Agreement
Amendment dated as of October 15, 1995 (Form 10-K, No. 1-10239, for the
year ended December 31, 1995). Senior Note Agreement Amendment dated
May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1996). Senior Note Agreement Amendment dated April 15, 1997 (Form 10-Q,
No. 1-10239, for the quarter ended September 30, 1997).
4.6 Senior Note Agreement, dated as of November 13, 1996, $75 million
Series A due November 13, 2006, $25 million Series B due November 13,
2008, $75 million Series C due November 13, 2011, $25 million Series D
due November 13, 2016 (Form 10-K, No. 1-10239, for the year ended
December 31, 1996).
10.1 Amended and Restated Revolving Credit Agreement dated as of
December 13, 1996 among Plum Creek Timber Company, L.P., Bank of America
National Trust and Savings Association, as Agent, NationsBank of North
Carolina, N.A., as senior co-agent and the Other Financial Institutions
Party Hereto (Form 10-K, No. 1-10239, for the year ended December 31,
1996).
10.2+ Plum Creek Supplemental Benefits Plan (Form 10-K/A, Amendment No.
1, for the year ended December 31, 1994). First Amendment to the Plum
Creek Supplemental Benefits Plan (Form 10-Q, No. 1-10239, for the
quarter ended September 30, 1995).
10.3+ Long-Term Incentive Plan, Plum Creek Management Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1993).
First Amendment to the Plum Creek Management Company, L.P. Long-Term
Incentive Plan (Form 10-Q, No. 1-10239, for the quarter ended September
30, 1995).
10.4+ Management Incentive Plan, Plum Creek Management Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1993).
10.5+ Executive and Key Employee Salary and Incentive Compensation
Deferral Plan, Plum Creek Management Company, L.P. (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1994).
10.6+ Deferred Compensation Plan for Directors, PC Advisory Corp. I
(Form 10-K/A, Amendment No. 1, for the year ended December 31, 1994).
10.7+ Plum Creek Director Unit Ownership and Deferral Plan (Form 10-K,
No. 1-10239, for the year ended December 31, 1996).
21 Subsidiaries of the Registrant. (Form 8 Amendment No. 1, for the
year ended December 31, 1990).
27* Financial Data Schedule for the year ended December 31, 1997. See
attached exhibit.
<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 year ended December 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 135,381
<SECURITIES> 0
<RECEIVABLES> 29,983
<ALLOWANCES> 1,285
<INVENTORY> 58,956
<CURRENT-ASSETS> 232,254
<PP&E> 1,184,198
<DEPRECIATION> 132,948
<TOTAL-ASSETS> 1,300,897
<CURRENT-LIABILITIES> 73,992
<BONDS> 745,000
0
0
<COMMON> 0
<OTHER-SE> 470,337
<TOTAL-LIABILITY-AND-EQUITY> 1,300,897
<SALES> 725,571
<TOTAL-REVENUES> 725,571
<CGS> 503,259
<TOTAL-COSTS> 552,290
<OTHER-EXPENSES> 1,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,364
<INCOME-PRETAX> 111,776
<INCOME-TAX> 80
<INCOME-CONTINUING> 111,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,696
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 0
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