UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10239
PLUM CREEK TIMBER COMPANY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 91-1443693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
Quarter Ended March 31,
-----------------------
1999 1998
---- ----
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues.........................................$ 178,221 $ 164,325
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Costs and Expenses:
Cost of Goods Sold.......................... 129,111 118,644
Selling, General and Administrative......... 10,443 9,606
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Total Costs and Expenses.................. 139,554 128,250
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Operating Income................................. 38,667 36,075
Interest Expense................................. (18,525) (14,973)
Interest Income.................................. 389 238
Reorganization Costs............................. (2,651) (34)
Other Income - Net............................... 156 1
------- -------
Income before Income Taxes....................... 18,036 21,307
Provision for Income Taxes....................... 174 27
------- -------
Net Income.......................................$ 17,862 $ 21,280
General Partner Interest......................... 8,534 8,099
------- -------
Net Income Allocable to Unitholders..............$ 9,328 $ 13,181
======= =======
Net Income per Unit..............................$ 0.20 $ 0.28
======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
March 31, December 31,
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................$ 106,517 $ 113,793
Accounts Receivable...................... 35,665 32,007
Inventories.............................. 56,512 55,963
Timber Contract Deposits................. 2,385 2,647
Other Current Assets..................... 5,682 6,053
------- -------
206,761 210,463
Timber and Timberlands - Net.................. 1,021,251 1,030,484
Property, Plant and Equipment - Net........... 183,536 186,179
Other Assets.................................. 11,942 11,117
--------- ---------
Total Assets.............................$ 1,423,490 $ 1,438,243
========= =========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt........$ 18,400 $ 18,400
Accounts Payable......................... 15,865 15,320
Interest Payable......................... 18,548 10,964
Wages Payable............................ 12,976 14,795
Taxes Payable............................ 7,054 4,081
Workers' Compensation Liabilities........ 1,300 1,550
Other Current Liabilities................ 8,068 15,766
------ ------
82,211 80,876
Long-Term Debt................................ 742,505 742,608
Line of Credit................................ 200,000 200,000
Workers' Compensation Liabilities............. 7,553 7,495
Other Liabilities............................. 3,401 1,849
--------- ---------
Total Liabilities........................ 1,035,670 1,032,828
--------- ---------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units....................... 389,781 406,857
General Partner............................... (1,961) (1,442)
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Total Partners' Capital.................. 387,820 405,415
------- -------
Total Liabilities and Partners' Capital..$ 1,423,490 $ 1,438,243
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
Quarter Ended March 31,
-----------------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income..........................................$ 17,862 $ 21,280
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation, Depletion and Amortization....... 18,484 16,383
Gain on Asset Dispositions - Net .............. (209) (28)
Working Capital Changes:
Accounts Receivable.......................... (3,658) (6,375)
Inventories.................................. (549) 3,270
Timber Contract Deposits and Other Current
Assets..................................... 633 (1,717)
Accounts Payable............................. 545 (897)
Other Accrued Liabilities.................... 790 2,719
Other.......................................... 826 1,550
------ ------
Net Cash Provided By Operating Activities...........$ 34,724 $ 36,185
------ ------
Cash Flows From Investing Activities:
Additions to Properties........................$ (7,438) $ (12,098)
Proceeds from Asset Dispositions............... 896 54
------ ------
Net Cash Used In Investing Activities...............$ (6,542) $ (12,044)
------ ------
Cash Flows From Financing Activities:
Cash Distributions.............................$ (35,458) $ (33,987)
Borrowings on Line of Credit................... 142,000 192,500
Repayments on Line of Credit................... (142,000) (192,500)
------- -------
Net Cash Used In Financing Activities...............$ (35,458) $ (33,987)
------- -------
Increase (Decrease) In Cash and Cash Equivalents.... (7,276) (9,846)
Cash and Cash Equivalents:
Beginning of Period........................... 113,793 135,381
------- -------
End of Period..................................$ 106,517 $ 125,535
======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
The combined financial statements include all the accounts
of Plum Creek Timber Company, L.P. (the "Partnership"), Plum
Creek Manufacturing, L.P. ("Manufacturing") and Plum Creek
Marketing, Inc. ("Marketing"). All significant intercompany
transactions have been eliminated in the combination.
The Partnership owns 98 percent of Manufacturing and 96
percent of Marketing. Plum Creek Management Company, L.P. (the
"General Partner") manages the businesses of the Partnership,
Manufacturing and Marketing and owns the remaining two percent
general partner interest of Manufacturing and four percent of
Marketing. As used herein, "Company" refers to the combined
entities of the Partnership, Manufacturing and Marketing.
The financial statements included in this Form 10-Q are
unaudited and do not contain all of the information required by
generally accepted accounting principles to be included in a
full set of financial statements. The financial statements in
the Partnership's 1998 annual report on Form 10-K include a
summary of significant accounting policies of the Company and
should be read in conjunction with this Form 10-Q. In the
opinion of management, all material adjustments necessary to
present fairly the results of operations for such periods have
been included. All such adjustments are of a normal and
recurring nature. The results of operations for any interim
period are not necessarily indicative of the results of
operations for the entire year. Reclassifications of certain
prior period amounts have been made in order to be consistent
with current period presentation.
The taxable income, deductions, and credits of the
Partnership and Manufacturing are allocated monthly to the
Unitholders based on the number of depositary units
representing limited partner interests ("Units") held.
Distributions of cash to a Unitholder are considered a non-
taxable return of capital to the extent of the Unitholder's
basis in the Units (as such basis is increased by the allocable
share of the Partnership's and Manufacturing's taxable income).
However, Unitholders are required to include in their income
tax filings their allocable share of the Partnership's and
Manufacturing's income, regardless of whether cash
distributions are made. In virtually all cases, a Unitholder's
1999 cash distribution will significantly exceed the tax
liability related to the Unitholder's allocated taxable income
from the Partnership and Manufacturing. For tax-exempt
entities, such as IRAs, most of the Partnership's and
Manufacturing's taxable income is treated as Unrelated Business
Taxable Income ("UBTI"). To the extent a tax-exempt entity has
more than $1,000 of UBTI for a tax year, it may be required to
pay federal income taxes. Marketing, as a separate taxable
corporation, provides for income taxes on a separate company
basis. Marketing provides for deferred taxes in order to
reflect the tax consequences in future years of the difference
between the financial statement and tax basis of assets and
liabilities as of the balance sheet date.
Net Income per Unit is calculated using the weighted
average number of Units outstanding, divided into the combined
Partnership net income, after adjusting for the General Partner
interest. The weighted average number of Units outstanding was
46,323,300 for each of the three month periods ended March 31, 1999
and 1998.
2. Reorganization
On June 8, 1998 the Partnership announced that the Board of
Directors of PC Advisory Corp. I ("Advisory Corp"), the
ultimate general partner of the Partnership, had authorized the
Partnership to seek approval from its Unitholders at a Special
Meeting of Unitholders to convert its structure (the
"Conversion Transaction") from a publicly traded Master
Limited Partnership into a publicly traded Real Estate
Investment Trust (the "REIT").
On April 9, 1999, the Partnership announced that it and its
general partner had entered into an agreement (the
"Settlement") settling previously disclosed Unitholder
litigation relating to the Conversion Transaction. Under the
terms of the Settlement, which remains subject to court
approval, the General Partner would be obligated to pay up to an
aggregate of $30 million into a fund for distribution to
eligible Unitholders if certain five-year financial targets of
the Company are not met. Payments by the General Partner, if
any, would be made following the end of the five-year period, on
or about April 15, 2004. Payments from the fund, less court-
approved attorney fees, would be made to Unitholders who are
beneficial owners as of the REIT conversion date.
On April 19, 1999, at the Special Meeting of Unitholders,
the Unitholders approved the Conversion Transaction with an
affirmative vote of 74.7% of all outstanding Units. The Company
expects to convert to a REIT as soon as practicable following
final court approval of the Settlement. Court approval will be
sought at a hearing scheduled for June 21, 1999.
Reorganization costs are being expensed in the period
incurred and are reflected as a separate line item in the
financial statements.
3. Inventories
Inventories consisted of the following:
March 31, December 31,
1999 1998
--------- ------------
(in thousands)
Raw materials (logs) $ 23,401 $ 25,129
Work-in-process 8,597 6,554
Finished goods 15,884 15,831
Export logs 590 53
------ ------
48,472 47,567
Supplies 8,040 8,396
------ ------
Total $ 56,512 $ 55,963
====== ======
Excluding supplies, which are valued at average cost, the
cost of the LIFO inventories valued at the lower of average cost
or market (which approximates current cost) at March 31, 1999
and December 31, 1998 was $48.2 million and $46.9 million,
respectively.
4. Timber and Timberlands and Property, Plant and Equipment
Timber and timberlands consisted of the following (in thousands):
March 31, December 31,
1999 1998
--------- ------------
Timber and logging roads - net $ 898,101 $ 907,830
Timberlands 123,150 122,654
--------- ---------
Timber and Timberlands - net $ 1,021,251 $ 1,030,484
========= =========
Property, plant and equipment consisted of the following (in thousands):
March 31, December 31,
1999 1998
--------- ------------
Land, buildings and improvements $ 66,815 $ 66,714
Machinery and equipment 279,543 275,149
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346,358 341,863
Accumulated depreciation (162,822) (155,684)
------- -------
Property, Plant and Equipment - net $ 183,536 $ 186,179
======= =======
5. Borrowings
As of March 31, 1999, the Company had $200.0 million of
borrowings under its revolving line of credit ("Line of
Credit"). Subject to customary covenants, the Line of Credit
allows the Partnership to borrow from time to time up to $225
million, including up to $20 million of standby letters of
credit issued on behalf of the Partnership or Manufacturing,
through December 13, 2001. As of March 31, 1999, $25 million
remained available for borrowing under the Line of Credit and
the Company had no outstanding standby letters of credit. As of
April 1, 1999, $102 million of borrowings on the Line of Credit
were repaid.
6. Segment Information
The table below presents information about reported segments
for the quarters ended (in thousands):
Northern Southern Land
Resources Resources Lumber Panel Sales Other Total
--------- --------- ------ ----- ----- ----- -----
March 31,
1999
- --------
External
Revenues $ 45,021 $ 12,269 $ 79,481 $ 40,286 $ 1,164 $ 0 $178,221
Intersegment
Revenues 33,118 8,102 41,220
Operating
income 27,644 6,074 3,555 4,951 731 0 42,955
March 31,
1998
- --------
External
Revenues $ 28,534 $ 14,824 $ 66,815 $ 39,625 $ 1,321 $ 13,206 $164,325
Intersegment
Revenues 29,364 12,001 41,365
Operating
income 19,479 12,133 3,178 2,449 1,155 406 38,800
A reconciliation of total operating income to combined
income before income taxes, for the quarters ended March 31, is
as follows (in thousands):
1999 1998
---- ----
Total segment operating income $ 42,955 $ 38,800
Interest expense - net (18,136) (14,735)
Corporate and other unallocated expenses (6,783) (2,758)
------ ------
Combined income before income taxes $ 18,036 $ 21,307
====== ======
7. Subsequent Events
On April 20, 1999, the Board of Directors of the General
Partner authorized the Partnership to make a distribution of
$0.57 per Unit for the first quarter of 1999. Total
distributions will equal approximately $35.5 million (including
$9.1 million to the General Partner) and will be paid on May 27,
1999 to Unitholders of record on May 14, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
As used herein, "Company" refers to the combined entities of
the Partnership, Manufacturing, and Marketing.
RESULTS OF OPERATIONS
First Quarter 1999 Compared to First Quarter 1998
The following table compares operating income by segment for
the quarters ended March 31:
Operating Income by Segment
(In Thousands)
1999 1998
---- ----
Northern Resources................... $ 27,644 $ 19,479
Southern Resources................... 6,074 12,133
Lumber............................... 3,555 3,178
Panel................................ 4,951 2,449
Land Sales........................... 731 1,155
Other................................ 0 406
------ ------
Total Segment Operating Income....... 42,955 38,800
Other Costs & Eliminations........... (4,288) (2,725)
------ ------
Total................................ $ 38,667 $ 36,075
====== ======
The accounting policies of the segments are substantially
the same as those described in Note 1 to Notes to Combined
Financial Statements in the Partnership's 1998 annual report on
Form 10K. For segment purposes, however, inventories are
stated at the lower of average cost or market on the first-in,
first-out ("FIFO") method. Therefore, the difference in
computing cost of goods sold under the LIFO and FIFO methods is
included in "Other Costs & Eliminations."
NORTHERN RESOURCES SEGMENT. Revenues increased by $20.2
million, or 35%, to $78.1 million in the first quarter 1999,
compared to $57.9 million in the first quarter 1998. This
increase was primarily due to $14.0 million of additional
revenues as a result of the Maine Timberland Acquisition and
increased Rocky Mountain Region log sales volume. Rocky
Mountain Region log sales volume increased by approximately 17%
compared to 1998 primarily as a result of favorable harvesting
conditions which allowed increased production in order to build
log inventories prior to seasonal downtime caused by weather.
Northern Resources Segment operating income was 35% and 34%
as a percentage of its revenues for the quarters ended March
31, 1999 and 1998, respectively. Northern Resources Segment
costs and expenses increased by $12.1 million, or 32%, to $50.5
million in 1999, compared to $38.4 million in 1998. This
increase was primarily due to $9.2 million of additional costs
as a result of the Maine Timberland Acquisition and increased
Rocky Mountain Region log sales volume.
SOUTHERN RESOURCES SEGMENT. Revenues decreased by $6.4
million, or 24%, to $20.4 million in the first quarter 1999,
compared to $26.8 million in the first quarter 1998. This
decrease was primarily due to an 18% decline in sawlog prices and
a 16% decline in sawlog sales volume. The price decline was
primarily weather related. Weather during the first quarter of
1999 was unseasonably dry, compared to unseasonably wet weather
during the first quarter of 1998. As a result, there was an
abundant supply of logs during the first quarter of 1999,
compared to a log shortage during the same period in the prior
year. The sales volume variance was primarily due to a decline
in the internal usage of logs and the abundant supply of logs.
The internal usage of logs declined compared to the prior year
first quarter due to the July 1998 closure of the Joyce,
Louisiana plywood facility and the three-month delayed start-up
of the new Joyce, Louisiana sawmill.
Southern Resources Segment operating income was 30% and
45% as a percentage of its revenues for the quarters ended
March 31, 1999 and 1998, respectively. This decline is
primarily due to lower log prices. Southern Resources Segment
costs and expenses decreased by $0.4 million, or 3%, to $14.3
million in 1999, compared to $14.7 million in 1998, primarily
due to the decline in sawlog sales volume.
LUMBER SEGMENT. Revenues increased by $12.7 million, or
19%, to $79.5 million in the first quarter of 1999, compared to
$66.8 million in the prior year first quarter. This increase was
primarily due to revenues of $8.2 million from the Meridian,
Idaho remanufacturing facility, acquired in May 1998, and a 9%
increase in lumber sales volume, offset in part by an 11% decrease
in Southern lumber sales prices. Lumber sales volume increased
primarily due to greater operating efficiencies at most of our
mills and the start-up of the new Joyce, Louisiana sawmill.
Southern lumber prices decreased primarily due to a lower
percentage of higher-value, wide-dimension lumber in our sale mix
as a result of fewer large diameter sawlogs from our timberlands.
Lumber Segment operating income was approximately 5% as a
percentage of its revenues for the quarters ended March 31,
1999 and 1998. Lumber Segment costs and expenses increased by
$12.3 million, or 19%, to $75.9 million in the first quarter of
1999, compared to $63.6 million in same quarter of 1998. This
increase was primarily due to $7.7 million of costs associated
with the Meridian, Idaho remanufacturing facility and increased
lumber sales volume.
PANEL SEGMENT. Revenues increased by $0.7 million to $40.3
million in the first quarter of 1999, compared to $39.6 million
in the first quarter of 1998. This increase was primarily due to
a 7% increase in plywood prices and a 4% increase in MDF prices,
offset in part by a slight decline in plywood sales volume.
Plywood prices increased primarily due to unusually strong
building activity during the first quarter of 1999, rising OSB
prices, a decline in plywood production, and strong industrial
markets. Prices also increased due to a higher percentage of
premium grade panel production. MDF prices improved due to
strong demand growth (approximately 15% during 1998) and our
consistent production of premium grade panels.
Panel Segment operating income was 12% and 6% as a
percentage of its revenues for the quarters ended March 31, 1999
and 1998, respectively. The increase in operating income was
primarily due to higher plywood and MDF prices and lower MDF raw
material costs. Panel Segment costs and expenses decreased by
$1.8 million, or 5%, to $35.3 million in the first quarter 1999,
compared to $37.2 million in the first quarter of 1998. This
decrease was primarily due to a decline in plywood sales volume
and a 10% decline in MDF raw material costs.
LAND SALES SEGMENT. Revenues decreased by $0.2 million, or
14%, to $1.2 million in 1999, compared to $1.4 million in 1998.
Land Sales Segment operating income was 63% and 87% as a
percentage of its revenues for the quarters ended March 31, 1999
and 1998, respectively. Land Sales Segment costs and expenses
increased by $0.2 million to $0.4 million in 1999, compared to
$0.2 million in 1998.
Other Costs and Eliminations (which consists of corporate
overhead, intercompany log profit elimination and the change in
the LIFO reserve) decreased operating income by $4.3 million in
the first quarter of 1999, compared to $2.7 million in the first
quarter of 1998. The change in Other Costs and Eliminations of
$1.6 million is primarily due to the intercompany log profit
elimination related to the build-up of log inventories in the
Southern Resources Segment in the fourth quarter of 1997 and the
subsequent processing of these logs in the first quarter of 1998.
Similar log inventories were not built-up during the fourth
quarter of 1998. The profit on intercompany log sales is
deferred (eliminated) until the lumber and plywood manufacturing
facilities convert existing log inventories into finished
products and sell them to third parties (at which time
intercompany profit is recognized).
Interest expense increased by $3.5 million, or 24%, to $18.5
million, for the quarter ended March 31, 1999, compared to $15.0
million for the quarter ended March 31, 1998. This increase was
primarily due to the issuance of $177 million of senior notes in
the fourth quarter of 1998 related to the Maine Timberland
Acquisition.
Reorganization Costs of $2.7 million are costs associated
with the anticipated conversion of the Partnership to a REIT.
See Note 2 of Notes to Combined Financial Statements.
Reorganization Costs consist of fees for legal, investment
banking and tax consultants, as well as printing and other
related costs. Reorganization costs are being expensed as
incurred.
The income allocated to the General Partner increased by
$0.4 million to $8.5 million for first quarter 1999, compared
to $8.1 million for the same period 1998, primarily due to
higher quarterly distributions to Unitholders. Net income is
allocated to the General Partner based on two percent of the
Company's net income (adjusted for the incentive distribution),
plus the incentive distribution. The General Partner's
incentive distribution is based on the number of outstanding
Units times a percentage of the per Unit distribution paid to
Limited Partners, which totaled $0.57 per Unit for the quarter
ended March 31, 1999, compared to $0.55 per Unit for the
quarter ended March 31, 1998.
FINANCIAL CONDITION AND LIQUIDITY
During the first three months of 1999, net cash provided by
operating activities totaled $34.7 million, compared to $36.2
million for the same period in 1998. The decrease of $1.5
million was primarily due to lower net income, offset in part by
higher depreciation, depletion and amortization. On March 31,
1999, the Company had $106.5 million of cash and cash
equivalents.
The Partnership has an unsecured Line of Credit with a group
of banks. Subject to customary covenants, the Line of Credit
allows the Partnership to borrow from time to time 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
March 31, 1999, the Partnership had $200 million outstanding
under the Line of Credit with $25 million remaining availability.
As of April 1, 1999, $102 million of the borrowings on the Line
of Credit were repaid.
The Company's borrowing agreements contain certain
restrictive covenants, including limitations on harvest levels,
sales of assets, cash distributions and the incurrence of
indebtedness. In addition, the Line of Credit requires the
maintenance of an interest coverage ratio. The Company was in
compliance with its debt covenants as of March 31, 1999.
All of the Company's lenders have provided written consents
to the Conversion Transaction. See Note 2 of Notes to the
Combined Financial Statements.
The Partnership will distribute $0.57 per Unit for the first
quarter of 1999. The distribution will equal $35.5 million
(including $9.1 million to the General Partner), and will be paid
on May 27, 1999 to Unitholders of record on May 14, 1999. 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. As a result of the indebtedness
incurred to finance the Maine Timberland Acquisition and as a
result of current and expected operating performance, the General
Partner expects that the Partnership may not be able to incur
significant levels of additional indebtedness in 1999, under the
terms of its current debt agreements. The General Partner
believes, however, that expected borrowings under its Line of
Credit, cash otherwise on hand and cash flows from continuing
operations will be sufficient to fund planned capital
expenditures, distributions, and interest and principal payments
for the next twelve months.
CAPITAL EXPENDITURES
Capital expenditures for the first three months of 1999
totaled $7.4 million, compared to $12.1 million for the same
period in 1998. Total 1999 capital expenditures are expected to
be approximately $28 million, compared to $64.3 million expended
in 1998. Planned capital expenditures include approximately $5
million to complete the construction of the Joyce, Louisiana
sawmill, $8 million for replacement and equipment upgrades in our
manufacturing facilities and $15 million for logging roads,
reforestation and expenditures related to our timberlands.
IMPACT OF THE YEAR 2000 ISSUE
Overview of Plan
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. This could result in a system failure or
miscalculation in the year 2000 when using date sensitive
software. During the first quarter of 1997, the Company adopted a
Year 2000 Plan to identify and address both internal and external
Year 2000 issues. The Year 2000 Plan addresses information
technology systems, process control systems and embedded chips
used in its manufacturing operations, and key business
relationships.
Pursuant to the Plan, the Company completed a company-wide
assessment of its information technology systems in 1997 to
determine the impact of the Year 2000 issue. Most of the
necessary revisions to the systems and processes were completed
by year-end 1998, with complete testing and verification of the
systems and processes for Year 2000 compliance to occur during
1999.
Assessment of Company's State of Readiness
Over the last five years the Company has replaced many of
its business computer systems in order to realize cost savings
and process improvements. A majority of these replacements, all
of which are Year 2000 compliant, were completed prior to the
company-wide Year 2000 Issue assessment, and the related costs
have been capitalized. In 1999, the replacement of the payroll
and human resources system will be completed at an approximate
cost of $300,000 for 1998 and an approximate cost of $110,000 for
1999. These costs will also be capitalized. Currently, the
payroll and human resources system replacement is 85% complete.
The Company's log accounting systems have required program
modifications to achieve Year 2000 readiness. The program
modifications and testing will be completed in mid-1999 at an
approximate cost of $28,000 for 1998 and an approximate cost of
$7,000 for 1999. Company information systems personnel are
performing all remediation efforts, and the related costs will be
expensed as incurred. The log accounting systems modifications
and testing are 95% complete.
During 1998, the Company completed an inventory of the
process control systems and embedded chips used in its
manufacturing operations and identified the systems that could be
subject to Year 2000 problems. The systems used in the lumber and
plywood operations will require minimal changes, while the MDF
systems will require the replacement of certain process control
software. The modifications and testing of the manufacturing
control systems will be completed in 1999, at an approximate cost
of $33,000 for 1998 and an approximate cost of $132,000 for 1999.
These costs will be expensed as incurred. Currently, the
modifications and testing of the manufacturing process control
systems are 90% complete.
As part of the Company's Year 2000 Plan, service providers,
vendors, suppliers and customers that are critical to the
Company's operations ("Key Business Partners") have been notified
and steps are being undertaken to determine their Year 2000
readiness through questionnaires, interviews, and other available
means. The Company's efforts to determine the readiness of Key
Business Partners and the potential impacts on the Company's
operations if such Key Business Partners are not Year 2000
compliant will be ongoing through year-end 1999.
Risks of the Company's Year 2000 Issues
The Company relies on Key Business Partners for materials
and services. Failure by Key Business Partners to achieve Year
2000 compliance could temporarily impact the ability of the
Company to operate. However, the impact of the failure of a Key
Business Partner would be limited to the extent that sufficient
alternate supplies of materials or services were available.
The Company is also dependent upon its customers for sales
and cash flow. Year 2000 interruptions in its customers'
operations could result in reduced sales, increased inventory or
receivable levels, and cash flow reductions. While these events
are possible, the Company's customer base is broad enough to
minimize the effects of individual occurrences.
Contingency plan
The Company is working to evaluate the need for contingency
plans to mitigate possible business disruptions. Contingency
plans may include increasing raw materials inventories, securing
alternate sources of supply, or modifying production schedules.
Additionally, should the Company determine that certain Key
Business Partners may fail to achieve Year 2000 readiness,
appropriate contingency plans would be developed.
Summary
Based on the Company's assessments, Year 2000 issues
relating to its information technology systems and process
control systems and embedded chips used in its manufacturing
operations are not expected to have a material impact on the
Company's financial position, results of operations or liquidity.
Furthermore, the Company will continue to monitor the progress
of its Key Business Partners in achieving Year 2000 compliance,
and, to the extent practicable, will develop contingency plans.
However, no assurance can be given that Key Business Partners
will achieve Year 2000 compliance on a timely basis, or the
extent to which operations may be impacted in the event that Key
Business Partners fail to achieve Year 2000 Compliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
-----------------------------------------------------
RISK
----
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On April 9, 1999, the Partnership announced that it and its
general partner had entered into an agreement (the
"Settlement") settling previously disclosed Unitholder
litigation relating to the Conversion Transaction. Under the
terms of the Settlement, which remains subject to court approval,
the General Partner would be obligated to pay up to an aggregate
of $30 million into a fund for distribution to eligible
unitholders if certain five-year financial targets of the Company
are not met. Payments from the fund, if any, less court approved
attorney fees, would be made to the Unitholders who are
beneficial owners as of the Conversion Transaction date on or
about April 15, 2004. Court approval will be sought at a hearing
scheduled for June 21, 1999.
On April 19, 1999, Unitholders approved the Conversion
Transaction, with 74.7% of the outstanding Units voted in favor.
The General Partner currently expects to consummate the
Conversion Transaction once the Settlement has been approved and
becomes final.
There is no other pending or threatened litigation involving
the Partnership which the General Partner believes would have a
material adverse effect on the financial position, results of
operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On April 19, 1999 the Company held a Special Meeting of
Unitholders to vote on the Conversion Transaction. Unitholders
approved the Conversion Transaction with the Units voted as
follows:
For 34,612,880
Against 2,734,029
Abstain 458,103
Withheld 1,654,417
Broker Non-votes 6,863,871
Items 2, 3, and 5 of Part II are not applicable and have been
omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) List of Exhibits
Each exhibit set forth below in the Index to Exhibits is
filed as a part of this report. Exhibits not incorporated by
reference to a prior filing are designated by an asterisk ("*");
all exhibits not so designated are incorporated herein by
reference to a prior filing as indicated.
INDEX TO EXHIBITS
Exhibit
Designation Nature of Exhibit
- ----------- -----------------
2.6 Amended and Restated Agreement and Plan of Conversion, dated as
of July 17, 1998, by and among Plum Creek Timber Company, Inc.,
Plum Creek Timber Company, L.P. and Plum Creek Management
Company, L.P. (Form S-4, Regis. No. 333-71371, filed January
28, 1999).
2.7 Agreement and Plan of Merger, dated as of July 17, 1998, by and
among Plum Creek Timber Company, L.P., Plum Creek Acquisitions
Partners, L.P. and Plum Creek Timber Company, Inc. (Form S-4,
Regis. No. 333-71371, filed January 28, 1999).
2.8 Agreement and Plan of Merger, dated as of July 17, 1998, by and
among Plum Creek Timber Company, Inc. and Plum Creek Management
Company, L.P. (Form S-4, Regis. No. 333-71371, filed January
28, 1999).
3.1 Amended and Restated Agreement of Limited Partnership of Plum
Creek Timber Company, L.P. dated June 8, 1989, as amended and
restated through October 17, 1995 (Form 10-Q, File No. 1-10239,
for the quarter ended September 30, 1995).
3.2 Certificate of Limited Partnership of Plum Creek Timber Company,
L.P., as filed with the Secretary of State of the state of
Delaware on April 12, 1989 (Form S-1, Regis. No. 33-28094, filed
May, 1989).
27* Financial Data Schedule for the quarter ended March 31, 1999. See
attached exhibit.
(b) Reports on Form 8-K
The Partnership filed a current report on Form 8-K/A dated
November 12, 1998, concerning the acquisition of 905,000 acres of
forest lands in central Maine from S.D. Warren Company.
The Partnership filed a current report on Form 8-K dated
February 8, 1999, reporting the filing of a purported class
action lawsuit in connection with the Conversion Transaction.
The Partnership filed a current report on Form 8-K dated
March 12, 1999, discussing potential tax legislation relating to
Real Estate Investment Trusts.
The Partnership filed a current report on Form 8-K dated
March 18, 1999, reporting an opinion issued by the Delaware Court
of Chancery in the Conversion Transaction litigation.
The Partnership filed a current report on Form 8-K dated
March 22, 1999, reporting the adjournment of the Special Meeting
of Unitholders to vote on the Conversion Transaction until March
24, 1999.
The Partnership filed a current report on Form 8-K dated
March 24, 1999, reporting the adjournment of the Special Meeting
of Unitholders to vote on the Conversion Transaction until March
29, 1999.
The Partnership filed a current report on Form 8-K dated
March 26, 1999, reporting the receipt of an Internal Revenue
Service ruling relating to the Conversion Transaction.
The Partnership filed a current report on Form 8-K dated
March 29, 1999, reporting the adjournment of the Special Meeting
of Unitholders to vote on the Conversion Transaction until April
19, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PLUM CREEK TIMBER COMPANY, L.P.
(Registrant)
By: Plum Creek Management Company, L.P.
as General Partner
By: /s/ William R. Brown
----------------------------
WILLIAM R. BROWN
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Date: May 13, 1999
<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 three months ended March
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<RECEIVABLES> 37,011
<ALLOWANCES> 1,346
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<PP&E> 1,367,609
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